Expatriate Taxation

Group 2

11th February 2012

Contents

General Overview of Expatriate tax regime in India:

Residency Rules Section 90 Computation of Tax Credit Tax Equalization

Residential status
Residential status

Resident

Resident and Ordinarily Resident (ROR)

Resident but Not Ordinarily Resident (NOR)

Non Resident (NR)

Residency is determined by physical number of days stay in India

3

Residential status ..Contd

Basic conditions: 182 days or more in a financial year 60 days* or more in a financial year plus 365 days or more in four financial years preceding the relevant financial year
Any one of the two conditions satisfied

None of the conditions satisfied

ROR / NOR

NR

* 60 days gets substituted for 182 days only in the year of departure for an Indian citizen proceeding abroad for the purposes of employment. In the year of arrival to India for resuming employment, the threshold limit is 60 days.

Residential status ..Contd

Additional conditions: Resident in India in atleast two out of ten financial years preceding the relevant financial year; and Present in India for 730 days or more during the 7 financial year preceding the relevant financial year

Both the conditions satisfied

One or none of the conditions satisfied

ROR

NOR

Generally, an expatriate coming to India for the first time will qualify as ROR in the 3rd or 4th year.
5

Illustration
Date of first arrival into India Date of departure from India Tax Year 20082008-09 Days 361 Cumm. stay 361 Res. status NOR 5 April 2008 31 December 2011 Remarks Not a resident in 2 out of 10 preceding years; and < 730 days in the 7 preceding years - do Resident in 2 out of 10 preceding years; but < 730 days in the 7 preceding years Resident in 2 out of 10 preceding years; and > 729 days in the 7 previous years

20092009-10 20102010-11

365 365

726 1091

NOR NOR

2011-12

275

1366

ROR

NR/ NOR Taxed in India only on Indian sourced income ROR Taxed in India on worldwide income
6

Section 90 of The Income Tax Act,1961

Section 90. AGREEMENT WITH FOREIGN COUNTRIES. (1) The Central Government may enter into an agreement with the Government of any country outside India (a) For the granting of relief in respect of income on which have been paid both income-tax under this Act and income-tax in that country, or (b) For the avoidance of double taxation of income under this Act and under the corresponding law in force in that country. (2) Where the Central Government has entered into an agreement with the Government of any country outside India under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee

Tax Treaties

Define which taxes are covered and who is a resident and eligible for benefits, reduce the amounts of tax withheld from interest, dividends, and royalties paid by a resident of one country to residents of the other country, Limit tax of one country on business income of a resident of the other country to that income from a permanent establishment in the first country, Define circumstances in which income of individuals resident in one country will be taxed in the other country, including salary, self employment, pension, and other income, Provide for exemption of certain types of organizations or individuals, and provide procedural frameworks for enforcement and dispute resolution.

Computation Of Tax Credit

Taxable income in India: Tax on this income Doubly Taxed Income (DTI) Income Tax paid in the foreign country (A) Income excluding DTI (576040-330774) Rs 576,040 79,116 330,774 67,015 245,266 8,782 (B) 70,334

Tax payable had DTI not been included Attributed Tax on DTI (79,116- 8,782)

Foreign taxes available in India as credit as per Article xx of India-xxx DTAA (lower of A or B)

67,015

Overview of Tax Equalization/ Protection

Home Country Income Tax

Host and Home Actual Income Taxes

Tax Equalization Cost Hypothetical Home Country Income Tax

10

Case Study
HOME COUNTRY: INDIA HOST COUNTRY: US Rs

GLOBAL INCOME; HOME(70),HOST(30)

100

Home Country Income Tax: (30% on 100)

30

Host & Home Country Income Tax

40

Hypothetical Home Country Income Tax (30% on 80)

24

Tax Equalisation (40-24)

16
11

THANK YOU :-) :-

12