Taxation of expatriate employees in India

Any person or persons residing temporarily or permanently in a country that is different from their home country or country of citizenship is referred to as an expat. Taxation of such expat employees involves a slightly different computation than the tax computed for a regular employee of an Indian organization.

Foreign expat in India

For any foreign expatriate working in India, the salary is deemed as earned in India if they are paid for services rendered in India. This is based on Section 9(1) (ii) of the Indian Income Tax Act. This rule is applicable irrespective of the resident status of the expat employee. Furthermore, the income earned is subject to tax deducted at source (TDS) irrespective of where the salary is actually credited. This means that even if the salary is credited in the home country of the expat employee, it is still subject to the Indian TDS.

In such cases, if salary is paid in foreign currency in the country of expat’s citizenship then such salary is converted into Indian Rupee (INR) and tax is calculated on total Indian currency value. Rate used to compute tax applicable is telegraphic transfer buying rate used by State Bank of India (SBI). Rate used is the rate on which tax is actually calculated on that respective day. This is based on Deduction of tax (Rule 26) section 192(6) of Indian Income Tax Act.

In case of foreign expats in India, actual tax burden is on Indian company where the expat has taken up a project or assignment and not on the expatriate himself or herself. For instance, when a US expat is sent to India, the Indian company will bear the burden of income tax. This in turn gives rise to the concept of grossing-up.

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