1. Introduction -With the globalisation of the world trade and liberalisation of the Indian economy, the number of persons moving in or out of India in theexercise of their business, profession or employment is on the increase. A brief discussion of the taxation of these expatriates is being attempted below:
2. RESIDENTIAL STATUS
As in most of the countries, the liability under the Indian Income tax law is also co-related to the residential status of the concerned tax payer. Section 6 of the Indian Income-Tax Act creates 3 categories as far as residential status is concerned.
2.1 Resident An Individual is said to be resident in India in any previous year if he is in India for at least 182 days in that year or during that year he is in India for a period of at least 60 days & has been in India for at least 365 days during the 4 years preceding that year. However, the period of 60 days referred to above is increased to 182 days in case of Indian citizens who leave India as members of the crew of an Indian Ship or for Indian citizens or persons of Indian origin who, being outside India, come to visit India in any previous year.
2.2 Non- Resident A person who is not a resident in terms of the above provisions is a non-resident.
2.3 Resident but Not A person who is otherwise resident as Ordinarily Resident defined in para 10.2.1 would be RNOR (RNOR) if he satisfies any of the following two conditions:
(i) He has not been resident in India in 9 out of 10 preceding previous years.
(ii) He has not been in India for an aggregate period of 730 days or more in the preceding 7 previous years.
W.e.f. 01.04.2004, the status ‘RNOR’ has been redefined as follows:-
An individual shall be said to be RNOR if he has been a non-resident in India in 9 out of 10 previous years preceding or period amounting to 729 days or less during the 7 previous years preceding that year.
3 SCOPE OF TAXATION:
Based on the residential status of payer, his tax liability will be as follows:-
Residential status Taxability of Income
(i) Resident All income of the previous year wherever accruing or arising or received by him including incomes deemed to have accrued or arisen.
(ii)Non-Resident All income accruing, arising to or deemed to have accrued or arisen or received in India.
(iii) Resident but not ordinary Resident All Income accruing or arising or deemed to have accrued or arisen or received in India. Moreover, all income earned outside India will also be included if the same is derived from a business or profession controlled or set up in India.
4. EXPATRIATES WORKING IN INDIA
In case of foreign expatriate working in India, the remuneration received by him, assessable under the head ‘Salaries’, is deemed to be earned in India if it is payable to him for service rendered in India as provided in Section 9(1 )(ii) of the Income Tax Act. The explanation to the aforesaid law clarifies that income in the nature of salariespayable for services rendered in India shall be regarded as income earned in India. Further, from assessment year 2000-2001 onwards income payable for the leave period which is preceded and succeeded by services rendered in India and forms part of the service contract shall also be regarded as income earned in India. Thus, irrespective of the residential status of the expatriate employee, the amount received by him as salary for services rendered in India shall be liable to tax in India being income accruing or arising in India, regardless of the place where the salary is actually received. However, there are certain exceptions to the rule which are briefly discussed below:-
4.1 Remuneration of an employee of a foreign enterprise is exempt from tax if his stay in India is less than 90 days in aggregate during the financial year [Sec. 1 0(6)(vi)]. This is subject to further relaxation under the provisions of Double Taxation Avoidance Agreement entered into by India with the respective country.
4.2 Remuneration received by a foreign expatriate as an official of an embassy or high commission or consulate or trade representative of a foreign state is exempt on reciprocal basis [Sec. 1 0(6)(ii)].
4.3 Remuneration from employment on a foreign ship provided the stay of the employee does not exceed 90 days in the financial year [Sec. 10(6)(viii)].
4.4 Training stipends received from foreign government (Sec. 10(6)(xi)).
4.5 Remuneration under co-operative technical assistance programme or technical assistance grants agreements (Sec. 10(8) & (10(8B)).
5. SPECIAL PROVISIONS RELATING TO NON-RESIDENTS
Chapter XIIA of the Income Tax Act deals with special provisions relating to certain incomes of non-residents. Sec. 11 5D deals with special provisions regarding computation of investment income of NRIs. Section 11 5E relates to investments income and long term capital gains of NRIs, such income being taxed at concessional flat rates. As per section 11 5F, capital gain is not chargeable on transfer of foreign exchange assets under certain circumstances. The NRIs need not file their return of income if their total income consist only of investment income or long term capital gains or both and proper tax has been deducted from this income(Sec. 11 5G). Benefits under this chapter are available even after the assessee becomes a resident (Sec. 11 5H). The provisions of this chapter would not apply if the assessee so chooses (Sec. 115I).
6. DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA)
The Central Government acting under the authority of Law(Sec. 90) has entered into DTAAs with more than 60 countries. Such treaties serve the purpose of providing protection to the tax payers from double taxation. As per section 90(2), in relation to an assessee to whom any DTAA applies, the provisions of the Act shall apply only to the extent they are more beneficial to the assessee. The provisions of these DTAAs thus prevail over the statutory provisions.
7. INDIAN RESIDENTS POSTED ABROAD
Indian residents who have taken up employment in countries with which India has got DTAA are entitled to the benefit of the DTAA entered into by India with the country of employment. Accordingly, their tax liability is decided.
Indian expatriates working abroad have been granted several special tax concessions under the Act. Professors,teachers and research workers working abroad in any university or any educational institutions are entitled to deduction of 75% of their foreign remuneration provided the same is brought into India in convertible foreign exchange within a period of 6 months from the end of the previous year or such extended time as may be allowed(Sec. 80-R). Similarly, in case of an Indian Citizen having received remuneration for services rendered outside India, 75% of his foreign remuneration is deductible from his taxable income provided such remuneration is brought to India in convertible foreign exchange within the time specified above (Sec. 80 RRA).
From assessment year 2001-2002 onwards, there has been a change in the amount of deduction available under sections 80R/ 80RRA. For details, reference may be made to the sections concerned of the Income Tax Act. No deduction u/s 80R/80RRA shall be allowed in respect of A.Y. 2005-06 onwards.
It may also be mentioned here that as per section 9(1)(iii) income chargeable under the head ‘Salary’ payable by the Government to a citizen of India for services rendered outside India is deemed to accrue or arise in India. However, allowances or perquisites paid or allowed outside India by the Govt. to a citizen of India for rendering services abroad is exempt from taxation u/s 10(7).
8. INCOME TAX CLEARANCE CERTIFICATE
An expatriate before leaving the territory of India is required to obtain a tax clearance certificate from a competent authority stating that he does not have any outstanding tax liability. Such a certificate is necessary in case the continuous presence in India exceeds 120 days. An application is to be made in a prescribed form to the Income Tax Authority having jurisdiction for assessment of the expatriate to grant a tax clearance certificate. This is to be exchanged for final tax clearance certificate from the foreign section of the Income Tax Department. Tax Clearance certificate is valid for a period of 1 month from the date of issue and is necessary to get a confirmed booking from an airline or travel agency and may be required to be produced before the customs authorities at the airport.