Tax information: going to India
Welcome to the tax guide on going to India, produced by Deloitte. Looking for tax information about leaving India, Click here
This document has been prepared based on the legislation and practices of the country concerned as at 01 April 2009. Tax legislation and administrative practices may change, and this document is a summary of potential issues to consider. This document should not be used as a substitute for professional tax and immigration advice which should be sought for the country of arrival and departure in advance of moving in order to discuss your specific circumstances.
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Before/once you arrive Q. Do I need a work permit to work in India?
A. Yes. All foreign nationals (except citizens of Bhutan and Nepal) require a valid employment visa.
Q. Should I complete any documentation upon arrival in India?
A. If you are a foreign national (other than Pakistan national or Afghanistan national) and enter India on an employment visa which is valid for more than 180 days, you need to obtain a registration certificate or residential permit from the foreigners regional registration offices in the four metropolitan cities or, at the state level, from the foreigners registration office of the respective state. The registration certificate must be obtained within fourteen days of your arrival in India. The registration certificate is required to be endorsed by the authorities prior to your departure.
Q. Is it beneficial to open an offshore bank account in comparison to an account in India?
A. Indian Exchange Control Regulations impose certain restrictions on the movement of currency out of India, and therefore the question of whether you should open an offshore account will depend upon your residence status in India under the foreign exchange regulations.
A person resident in India can remit such sums outside India as are permissible under the exchange control regulations.
Individuals, who are employees of a foreign company and are on deputation to India may open, hold and maintain foreign currency accounts with a bank outside India and receive a salary from the foreign company to the extent of 75% of their net salary abroad, with the balance paid in Indian rupees in India.
Remittance for maintenance of close relative abroad :
- A person who is resident but not permanently resident in India and,
- Is a citizen of a foreign state other than Pakistan; or
- Is a citizen of India, who is on deputation to the office or branch or subsidiary or joint venture in India of such foreign company
can remit entire net salary (after deduction of taxes, contribution to Provident Fund (i.e. social security) and other deductions).
The term ‘not permanently resident in India’ means a person resident in India on account of his employment or deputation of a specified duration (irrespective of length thereof) or for a specific job or assignment, the duration of which does not exceed 3 years.
- A person other than covered in (i) above, can remit US$ 100,000/- per year per recipient
Remittance facilities to Residents:
Allowed to remit US $ 200,000 per financial year for any purpose including capital account transaction.
It should be noted that a non-resident of India can open a Non-Resident Ordinary (NRO) bank account, but that balances in these accounts are not eligible for remittance outside of India without approval of the Reserve Bank of India.
Q. What is the name of the Indian tax authority?
Ministry of Finance.
The website is http://finmin.nic.in/
Q. What is the tax year?
A. 1 April to 31 March.
Q. How will I be taxed in India?
A. Income taxes are levied at the national level by the Central Government and Profession Tax at the State level by the State Governments.
There are three categories of tax residence in India. If you are resident and ordinarily resident then you are taxed on worldwide income. If you are non-resident then you are subject to Indian tax only on income accruing or arising in or received in (or deemed to accrue or arise in or to be received in) India. If you are resident but not ordinarily resident you are taxed as non-resident, except that you will also be subject to Indian tax on income arising outside India from a business controlled, or a profession set up, in India.
Employment income is considered to arise in India if it is in respect of services rendered in India, or is for a leave period, which is preceded and succeeded by services rendered in India, and forms part of your service contract of employment.
Other income from specified sources is exempt from tax, including:
• Interest on the Public Provident Fund
• Interest on relief bonds
• Interest on certain bonds of public sector companies
• Interest to non-resident and resident but not ordinarily residents under the Income-tax Act on deposits in foreign currency with scheduled bank
• Dividend received from domestic companies
• Long-term capital gains on sale of shares or units of equity oriented fund on or after 1 October 2004 where sale transaction is subjected to Securities Transaction Tax in India
• Income from specified mutual funds in India
• Tax borne by employer on non-monetary perquisites at the option of the employer
Most other interest is taxable at normal graduated rates.
Dividends from foreign payers are taxable at normal graduated rates.
Q. How is tax residence determined?
A. You will be resident for a particular tax year if either of the following conditions is satisfied:
• You are present in India for 182 days or more in the year; or
• You are present in India for 60 days or more, and within the four previous years you have been in India for a total of 365 days or more. The 60 day requirement is relaxed to 182 days for Indian citizens leaving India as crew members of an Indian ship or for the purpose of employment outside India. The 60 day requirement is also relaxed to 182 days for citizens or persons of Indian origin who come from outside India for a visit in a particular year.
Further, you would be a resident but not ordinarily resident for a tax year if either of the following conditions are satisfied:
• You have been non-resident in India for 9 of the previous 10 years; or
• Your presence in India during the previous 7 years has been less than 730 days.
If neither of the above conditions are satisfied, you are ordinarily resident in India for the tax year.
Q. Are there any regional or state taxes?
A. There are no provincial, municipal, or local income taxes. Municipalities levy property taxes to support municipal services such as garbage removal, water supply, etc. Profession tax is levied in several states like Maharashtra, Orissa, etc. This is usually a small amount.
Q. Can I file a joint tax return with my spouse?
A . No. Individuals must file their own tax returns. Spouses are taxed separately on their respective incomes, except for two classes of income which are attributed to the other spouse:
• Income from assets which were transferred from the other spouse for less than adequate consideration; and
• Income from a concern in which the other spouse has a substantial interest, unless the recipient spouse is technically or professionally qualified.
Income of a minor child is taxed to whichever parent has the higher income.
Q. What rate of tax will I pay in India?
A. Year Ending 31 March 2009
Individual below the age of 65 years (not being a resident woman)
(In Rs)
| From | To | Excess | Effective Tax |
| 0 | 150,000 | 0% | 0 |
| 150,001 | 300,000 | 10% | 10% |
| 300,001 | 500,000 | 20% | 15,000+ 20% |
| 500,001 | 30% | 55,000 + 30% |
Resident woman below the age of 65 years
| From | To | Excess | Effective Tax |
| 0 | 180,000 | 0% | 0 |
| 180,001 | 300,000 | 10% | 10% |
| 300,001 | 500,000 | 20% | 12000+ 20% |
| 500,001 | 30% | 52,000 + 30% |
Individual of age of 65 years or more
| From | To | Excess | Effective Tax |
| 0 | 225,000 | 0% | 0 |
| 225,001 | 300,000 | 10% | 10% |
| 300,001 | 500,000 | 20% | 7,500 + 20% |
| 500,000 | 30% | 47,500 + 30% |
Where the income of the individual exceeds Rs. 1,000,000 the surcharge will be at the rate of 10% on the total tax liability. Education cess will be levied, in all cases, at the rate of 3% of total tax (including surcharge, if applicable).
Q. Can I claim a tax deduction for charitable contributions?
A. 50% of charitable donations made to Indian approved funds are deductible. The maximum amount of donation in respect of which deduction can be claimed is restricted to 10% of total taxable income exclusive of this deduction.
Some specified funds set up by the Central or State Government are eligible for 100% deduction.
No such deduction will be allowed against specific incomes taxed at special rates viz long-term capital gains, short term capital gain taxed at 15%, etc.
Q. Are any other tax deductions available?
A. Other deductions and allowances include the following:
• Profession tax paid
• Medical insurance premium to a maximum of Rs 15,000 ( if the person covered is a senior citizen, this would be enhanced to Rs 20000)
Medical insurance premium for dependent parents Rs 15000( if the person covered is a senior citizen enhanced to Rs 20000)
• Medical expenses reimbursed by the employer to a maximum of Rs 15,000.
• Interest payable on the amounts borrowed for acquiring, constructing, repairing, renewal or reconstruction of house property, with the maximum deduction for self occupied property being Rs. 30,000. If certain specified conditions are fulfilled, then the deduction of interest on capital borrowed in respect of a self occupied residential house will be Rs.150,000.
• Life insurance premium, deferred annuity, contribution to provident fund, subscription to certain equity shares or debentures, etc. to a maximum of Rs. 100,000 in aggregate.
Q. I will also be paying tax in my home country. Am I being taxed twice?
A. No. Subject to fulfilment of certain conditions, a foreign tax credit will usually be claimed on your home country tax return for Indian taxes paid on Indian source income. Alternatively, an exemption of income may be claimed on your home country tax return.
Likewise, in certain circumstances, a foreign tax credit may be claimed on your Indian tax return for foreign taxes paid on foreign sourced income. Alternatively, an exemption of income may also be claimed on your India tax return.
The method of mitigating double taxation will depend upon your home country’s domestic tax legislation, and the existence of tax treaty between India and your home country for avoidance of double taxation.
Q. Do I need to file an Indian tax return?
A. Every individual who has income liable to Indian tax is required to file a tax return. Other individuals must also file a return if certain circumstances apply.
Q. When does it need to be filed?
A. Income tax returns for a fiscal year (ending March 31) must be filed by July 31, except that returns where the accounts are subject to audit must be filed by September 30.
Q. Can the filing deadline be extended?
A. There is no provision for extension of return deadlines.
Q. What is the procedure for paying tax?
A. Tax is withheld by employers from salaries or wages based on estimated annual income and deductions. In respect of other income, tax is required to be paid in advance instalments on or before15 September, 15 December and 15 March. For deferment in payment of advance tax, interest at the rate of 1% per month is payable. Further, a shortfall in the payment of aggregate advance tax is subject to interest of 1% per month. Late filing of the return entails additional interest of 1% per month.
Q. Will non-cash compensation be taxable (e.g. housing)?
A. There are some concessions available on housing. Unfurnished employer-owned housing is normally valued at 15% of the employee’s salary where the accommodation is located in a city whose population exceeds 2.5 million or 10% of the employee’s salary where the accommodation is located in a smaller city (where the population exceeds 1 million but not exceeding 2.5 million) or 7.5% in other areas. Where the accommodation is leased, the value is 15% of salary or the lease cost, whichever is lower. For furnished accommodation, the value of unfurnished accommodation shall be increased by 10% of the cost of furniture. In computing the value of accommodation perquisites the rent actually paid by the employee shall be reduced. For hotel accommodation (except for first 15 days), the value is the lesser of actual cost and 24% of salary paid /payable.
Other non-cash compensation namely servants, utilities, children's education, concessional loans and use or transfer of movable assets are taxed on the employee in accordance with the cost incurred by the employer or a specific method specified in legislation for that particular asset
The compensation provided in the form of specified fringe benefits, other than the items discussed above, is taxed in the hands of employer.
All benefits or amenities received by an employee are non-taxable if the salary income excluding the monetary benefits by the employee does not exceed Rs 50,000. The amount incurred towards the cost of medical treatment outside India is exempt.
Q. I will be working in different countries while living in India. Will all of my employment income be taxable in India?
A. This will depend upon your residential status.
If you are resident and ordinarily resident you will be taxed in India on your worldwide income including employment income, subject to applicable treaty benefits.
If you are a non-resident you will be subject to Indian tax only on income arising in or received in (or deemed to arise in or to be received in) India. Employment income is considered to arise in India if it is in respect of services rendered in India.
If you are resident but not ordinarily resident you are taxed as a non-resident, except that you will be subject to Indian tax on income arising outside India from a business controlled, or a profession set up, in India.
Q. Will I pay Indian tax on investments and rental income generated in my home country?
A. This will depend upon your residential status in India. If such income is also taxed in India a foreign tax credit may be claimed on your Indian tax return against tax on foreign sourced income subject to fulfilment of certain conditions. The tax credit may alternatively be claimed in the home country if domestic tax laws of home country so provide.
An exemption may be claimed in India if the tax treaty between India and the home country so provide.
Q. Is there a Capital Gains Tax (CGT) regime in India?
A. Yes. The rate of tax for long-term capital gains is 20% plus surcharge at 10% of tax (if income exceeds Rs. 1 million) plus education cess of 3% on tax plus surcharge, while that for short-term capital gains is the rate per the applicable band of income.
Short-term capital gains means capital gains arising from the transfer of asset held for a period upto twelve months, for assets being security listed in a recognised stock exchange in India, unit of Unit Trust of India or Unit of a Mutual Fund registered under the Securities and Exchange Board of India and for a period upto thirty-six months, for other assets.
From 1 October 2004, long-term capital gains on sale of equities on a recognised stock exchange in India are exempt from capital gains tax. Short-term capital gains on equities on a stock exchange are taxed at the rate of 10 per cent plus surcharge at 10% of tax (if income exceeds Rs. 1 million) plus education cess of 3% on tax plus surcharge. There is securities transaction tax payable in all cases of transactions in equities on a recognized stock exchange.
A long-term capital gain from the disposal of a residential property is normally exempt if the capital gain is reinvested;
(1) In another residential property within a period of one year before or two years after the disposal and do not sell the new property within three years of acquisition or
(2) Construction of another property within a period of three years after the disposal and do not sell the new property within three years of construction.
The amount earmarked for investment in the new property must be deposited in a specified bank account until used. If the new property is sold within three years, in computing the capital gains on new property, the cost of new property shall be reduced by the amount of capital gains exempted earlier .The investment in house shall be subject to exchange control regulations in case of persons not resident in India under the Indian Foreign Exchange Management Act.
Similarly, a long-term capital gain on the disposal of an asset other than residential property will be exempt if;
(1) You invest the consideration in a residential property within a period of one year before or two years after the disposal and do not sell the new property within three years of acquisition; or
(2) You construct another property within a period of three years after the disposal and do not sell the new property within three years of construction.
You should not be an owner of more than one other residential house (other than the new house) at the time that the original asset was sold. Further, apart from the new house acquired as above, you should not acquire a residential house within a period of one year or construct a residential house within a period of three years after the transfer of original asset if new house is chargeable to the income from house property. In the event that you fail to comply with any of the above conditions, the long-term capital gain originally exempted becomes taxable in the year in which such a failure occurs.
(3) You invest in specified bonds within six months after the date of transfer and do not sell such bonds within three years of acquisition, to the extent of capital gains invested.
(4) You invest in eligible issue of capital within six months after the date of transfer and do not sell such bonds within one year of acquisition, to the extent of capital gains invested.
The investments as stated above shall be subject to exchange control regulations in case of persons not resident in India under the Indian Foreign Exchange Management Act.
There is a system of indexation that serves to increase the cost base of an asset in order to account for inflation, in certain situations.
Capital losses are not deductible against other income, but may be carried forward for use against capital gains realized up to 8 years following the loss. Further, loss on long-term capital assets may be set off only against gain on long-term assets and cannot be set off against the gain on short-term assets. However, short-term capital loss can also be set-off against long-term capital gain. Note that when a loss is incurred, and the associated income tax return is not filed on a timely basis, the loss is not available for carry forward.
Q. What do I need to know about any other tax regime, e.g. Inheritance, Estate or Wealth tax?
A. Wealth Tax
Wealth tax is levied on specified assets and categories of persons. Persons subject to wealth tax are generally individuals, Hindu undivided families, and companies. The assets chargeable to wealth tax are:
• Residential houses, guesthouses and farm houses within 25 kilometres from local limits of muncipality. Houses allotted by a company to employees drawing remuneration less than Rs 500,000 are exempt. One house belonging to an individual is also exempt.
• Motorcars, boats, yachts and aircraft other than those used for commercial purposes.
• Jewellery, bullion, furniture, utensils gold, silver, platinum or any other precious metal.
• Urban land.
• Cash on hand in excess of Rs 50,000 in the case of individuals and Hindu undivided families, and any amount not recorded in the books of account in the case of companies.
The above should not include (for a period of seven years) money and assets bought by a person of Indian origin or a citizen of India on his return to India with the intention of permanently residing in India subject to certain conditions.
All other assets are exempt from wealth tax.
The chargeable assets are to be valued as per specified rules of valuation. Debts incurred in relation to such assets are allowed as a deduction in computing the net wealth. The wealth tax is levied on the net wealth as on 31 March of each year.
The first Rs 1,500,000 of net wealth is exempt from wealth tax. The balance of net wealth is chargeable to tax at a rate of 1%.
Individuals ordinarily resident in India and companies resident in India are subject to wealth tax on their worldwide wealth. In the case of individuals who are not citizens of India, non-resident or not ordinarily resident and companies that are non-resident, the assets and debts located outside India are not taken into account.
The wealth of a minor child is aggregated with the wealth of the parent whose wealth is greater.
There is no inheritance tax or gift tax regime in India. Many documents are subject to Stamp Duty. There are other miscellaneous taxes such as the Expenditure tax, Central sales tax, Local sales tax, Service tax and the Profession tax.
Q. Will I be required to pay Indian Social Security?
A. The Ministry of Labour and Employment, Government of India has notified Employees’ Provident Funds (Third Amendment) Scheme 2008 and Employees’ Pension (Third Amendment) Scheme 2008 notification dated 1st October, 2008 to extend applicability of these schemes to “International Workers”. The effective date would be the 1 st of October 2008 .
International Worker means “ an employee other than an Indian employee, holding other than an Indian passport, working for an establishment in India to which the provident fund act applies.
The provisions of the EPF Act apply to every establishment in which 20 or more persons are employed.
The employer would have to contribute 12% of the basic pay towards Provident Fund. The employee would have to make a matching contribution, though he has an option to contribute more than 12%.
Basic pay for this purpose is the basic salary, dearness allowance (including the cash value of any food concessions) and retaining allowance (if any) and also includes allowance like Cost of Living Allowance (COLA).
The contributions need to be deposited by the employer by the 15 th of the following month.
Q. Are social security contributions deductible for tax purposes?
A. The employer contribution of 12% to Recognized Provident Fund is exempt from tax and amount contributed by employee is eligible (Maximum, of Rs 100,000) for deduction under section 80C.
