Pre-immigration tax strategies and planning for expatriates coming to India
By Vijesh H. Zinzuwadia, Zinzuwadia & Co. CA
The Indian government has initiated the Make in India programme to launch India as a new manufacturing hub and to encourage companies to develop, manufacture, and assemble products made in India. This has led to an increased number of expatriates coming to India. Considering tax planning for expatriates coming to India has become an essential part of this initiative.
Tax planning for expats can be split into two parts as follows:
1. Direct tax
The following issues should be considered in pre-immigration tax planning of expatriates:
a. Residential status
If a foreign national stays in India for more than 182 days, for tax purposes, they are considered a resident, and if not, they are considered a non-resident.
For the resident, global income earned/accrued is taxable. For the non-resident, only income earned/accrued in India is taxable.
c. Double Tax Avoidance Agreement (DTAA)
If India has entered into a DTAA with the foreign national’s country of residence, then the following benefits may be available:
- Tax credit: Tax paid on the double taxed income can be claimed as credit in payment of tax in the expat’s country of residence.
- Tax exemption benefit to salary income of a non-resident Indian: If the salary is paid by a company not permanently established in India, then salary income earned in India is also not taxable here.
2. Contributions to social security and retirement benefits in India
Any foreign national employed in India with an employer who is registered with the Employees Provident Fund Organisation (EPFO) of India must contribute 12% of their salary income to the EPFO. India has entered into social security agreements with various countries where there is exemption for foreign employees to contribute to their own country’s social security instead of India’s Provident Fund if:
- They are employed by an employer of the other contracting state;
- A certificate of coverage is obtained from the social security offce of their home country.
Vijesh H. ZinzuwadiaGGI member firm
Zinzuwadia & Co. CA
Advisory, Auditing & Accounting, Corporate Finance, Tax
T: +91 792 646 77 74
Vijesh H. Zinzuwadia is a practicing Chartered Accountant and independent committee member of several local companies and MNCs. He has a rich experience of about 20 years, consulting small to large size corporates and FDI companies for their strategic entry into the Indian market. He also has strong experience in acting as a virtual CFO on behalf of the small to mid-size local companies and MNCs to ensure process improvisation, increased manpower efficiency, and the health of the financials of the company. Vijesh also has sound experience in debt restructuring and task force management during financial crises.
Published: Global Mobility Solutions Newsletter, No. 01, Spring 2022 l Photo: Vivek - stock.adobe.com