Key Things About Expat Employee Taxation in India – A Technical Guide

An expat or expatriate is referred to as an individual who temporarily or permanently resides and/or works in a country other than the country of his citizenship or residence regardless of whether he has relinquished the citizen of his native country or not. As the source of earning is another country, therefore, taxation becomes an important aspect. Here’s a technical guide on expatriate taxation addressing certain key aspects.

Residential Status Expat Employee

In India, residential status for income tax is governed by Section 6 of the Income Tax Act, 1961. Following is the taxation impact of the residential status of expats in India:

Income	Residential Status
Resident and Ordinarily Resident	Resident but Not Ordinarily Resident	Non-Resident
Income received or deemed to be received in India	Yes	Yes	Yes
Income accrues or arises or deemed to accrue or arise in India	Yes	Yes	Yes
Income that accrues or arises outside India from a business controlled in India or a profession set up in India	Yes	Yes	No
Other income	Yes	No	No

Therefore, you need to determine your residential status as per income tax to determine which of your incomes would be subject to expatriate taxation in India.

Double Taxation Avoidance Agreement (DTAA)

Citizenship is not a criterion for determining the residential status in India as well as in many other countries. Therefore, it can happen that you turn out to be a resident of more than one country. Further, your income can be taxed by the country of your residence as well as in India where you are an expat and earning your income from. This will lead to double taxation of your income.

To avoid this, countries enter a Double Taxation Avoidance Agreement (DTAA) to avoid instances of double taxation in such scenarios. DTAA is a detailed agreement that determines what income shall be taxable and which country shall be allowed to collect tax. In India, the provisions of DTAA override the income tax law unless the provisions of income tax law are more beneficial to the assessee.

How Do Expats Pay Tax in India?

The amount of tax that you pay will depend upon your residential status as well as expat salary structure in India (in case of expatriate employee taxation). If you are a resident, then the normal tax rates will apply to you. Also, you can avail of the benefit of rebates under Section 87A. However, if you are a non-resident, then while the normal tax rates would apply, but you would become ineligible for claiming rebate under section 87A. Also, the benefit of a higher exemption limit of Rs. 3 lakhs and 5 lakhs for senior citizens and very senior citizens won’t be available to you. However, being an expat, you can claim all the benefits available as per DTAA. Therefore, if DTAA prescribes a lower tax rate, then that will be applicable to you.

If you find expatriate taxation in India confusing, then feel free to contact the ASC Group. With more than 25 years of experience, ASC has been pioneering in helping out the expats with all the legal and taxation issues.

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