India, similar to a majority of global economies, practices residence-based taxation. Indian people that are Persons of Indian Descent (PIO), Overseas Citizens of India (OCI), and expatriates or foreign citizens who have been residing in India for 182 days and more have to file income tax returns in India. Filing of tax in India for expats is typically based on the resident’s global income and is subject to the DTAA (Double Tax Avoidance Agreement) conditions.
Are Expatriates Liable to Pay Taxes in India?
In India, an expatriate is someone who comes to live in the country and is not an Indian citizen by birth. As per Indian tax rules, any foreign citizen who is employed or working in India is guilty of paying income tax. Any foreign national that receives or earns income in India is required to pay expatriate income tax by law, irrespective of the status of residency, citizenship or purpose of residency of the person. This income will be deducted at source; even though, after filing tax returns in India, the person will be entitled to a refund if he or she earns less than the minimum exempted sum. It may also be the responsibility of foreign nationals to pay tax on capital gains they receive from selling capital assets within India. The section below covers Indian regulations for expatriates working in India and the types of income that are taxed.
Income Tax for Foreign Nationals in India
All salary earnings derived from rendering services in India shall be treated as accruing or occurring, irrespective of where it is received or the recipient’s residential status.
Expat workers of foreign companies who are nationals of foreign countries shall not be liable to pay tax for expats if any of the following requirements are met:
- The foreign company in India is not engaged in trade or business in the country.
- The expat employee has not lived in India for more than 90 days that year.
- The compensation made is not reported as a deduction from taxable income in India by the employer.
Self-Employment and Business Income Tax Rules for Expats
Everyone who is either self-employed or in business in India is subject to pay tax.
With the exception of the salaries head, company expenses sustained in the current year can be set off against profits under any other head. If business losses can not be entirely covered in the present year, those losses can be carried forward for an 8-year period given that the income tax return for the year of losses is filed in time.
Expat Investment Income
Dividends are taxed as follows (all must be recorded by means of expatriate tax returns):
– In the hands of individual shareholders, dividend revenue received from Indian companies is taxable. The dividend holder will have to make payments according to their respective revenue-tax tax slabs.
– Dividends obtained from foreign corporations are subject to taxes at regular tax rates in the hands of shareholders.
Expat Directors’ Fees
Fees of expat directors are taxed at the normal progressive rates. Tax is expected to be deducted from the source at a rate of 10% or in the form of fees charged to residents by directors. Expenditures generated wholly and solely for earning fees are permitted as deductions.
Expat Rental Income
Rental income earned by a person from the lease of residential property (including buildings or land owned by them) shall be taxable at the amount calculated in accordance with specific provisions. According to expatriate tax law, the following deductions from this value are permitted:
- Taxes paid for such property to local authorities
- An amount equal to 30% of the value of maintenance as a notional expense
- Interest payable on the capital borrowed for the acquisition, development, repair, restoration or rebuilding of properties
Income Tax Documents for Expats When Filing IT Returns in India
When filing their income tax returns in India, foreign nationals or expatriates are expected to send the following documents:
- Form 16: This form is issued by the employer of the person involved and provides all details on the income of the person as well as any deductions from the income of the individual for the tax year.
- TDS Certificate: Form 16A is also called the TDS Certificate. This form is issued by financial organizations and provides specifics of the tax deducted at source on any other income received by the individual.
- Bank statements: Foreign nationals are expected to submit bank statements indicating all transactions made during the course of the taxation year. Such transactions can consist of any savings, investments, accrued profits, expenditures, etc.
- Property Details: Any property or asset sold within India will be subject to capital gain tax on the revenue earned from the transaction. When filing Income Tax Returns, information about the selling of any property or asset in India would need to be given.
- Investment Proof: Persons who have made some form of investment(s) which is/are not included in their Form 16 are expected to include documentation of that investment.
We hope the blog above has gotten you acquainted with all the formalities and documents necessary to fill IT returns in India to continue living life uninhibited here. If you need further help with respect to expat tax returns, be smart and connect with a local chartered accountant or accounts expert to file your IT returns. If you would like to learn more about the country and need help with Indian immigration particulars, subscribe to our newsletter today.