Meaning of Expatriate (Expat)

An expatriate is an individual who temporarily resides and works in a foreign country while maintaining citizenship in their home country. The taxation of expatriate employees involves a slightly different computation compared to regular employees of an Indian organization.

Taxation of Foreign Expats Working in India
 

For any foreign expatriate employed in India, their salary is considered earned in India if they are paid for services rendered in India, as per Section 9(1)(ii) of the Income Tax Act. This rule applies irrespective of the resident status of the expatriate employee.

Additionally, their income is subject to Tax Deducted at Source (TDS), regardless of where the salary is credited. This means that even if the salary is deposited in the expat’s home country, it is still subject to Indian TDS.

If the salary is paid in foreign currency, it is converted into Indian Rupees (INR) for tax computation. The conversion rate applied is the telegraphic transfer buying rate of the State Bank of India (SBI), as per Rule 26, Section 192(6) of the Income Tax Act. The tax is calculated based on the applicable rate on the day of deduction.

Tax Grossing-Up for Expatriates

When a foreign expatriate receives a salary in India, only the net salary after tax is credited to their account. The Indian employer bears the tax liability, meaning that an expatriate’s gross salary includes both their net salary and tax liability. This process is called tax grossing-up.

Computation of Tax on Expatriate Salary in India

• The highest income tax rate in India is 30%.
• Additionally, a 4% health and education cess is levied, bringing the effective total tax rate to 31.2%.
   

Avoidance of Double Taxation for Expats
 

Expatriates often face the risk of double taxation in both their home country and India. If an expatriate’s home country does not have a Double Tax Avoidance Agreement (DTAA) with India, they can still claim tax relief under Section 91 of the Income Tax Act.
 

Under this provision, expatriates can claim a deduction from Indian income tax for taxes already paid in the foreign country, limited to whichever is lower:
 

• The Indian income tax rate on the income, or
• The actual tax paid in the foreign country.

Expert Expatriate Taxation Services by Naveen Pandey and Associates
 

Taxation of expatriates in India is a complex matter, requiring specialized knowledge and compliance expertise. At Naveen Pandey and Associates, we provide expert expatriate taxation services, including:

✔ Repatriation assistance for expatriate employees
✔ Annual tax equalization calculations
✔ Tax compliance services
✔ Tax return preparation and filing
✔ Representation in tax assessments, appeals, and litigation
✔ Advisory on double taxation and tax planning

Additionally, we offer a range of financial services, including accounting & bookkeeping, auditing & assurance, tax audits, management audits, statutory audits, income tax planning, direct and indirect taxation, and more. For expert assistance with expatriate taxation, contact us today at  [email protected].