INTERNATIONAL EXECUTIVE SERVICES. India. Taxation of International Executives TAX

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1 INTERNATIONAL EXECUTIVE SERVICES India Taxation of International Executives TAX

2 India: Taxation of International Executives Overview and Introduction 2 Income Tax 3 Tax Returns and Compliance 3 Tax Rates 3 Residence Rules 4 Termination of Residence 5 Economic Employer Approach 5 Types of Taxable Compensation 6 Tax-Exempt Income 6 Expatriate Concessions 7 Salary Earned from Working Abroad 7 Taxation of Investment Income and Capital Gains 8 Additional Capital Gains Tax (CGT) Issues and Exceptions 9 General Deductions from Income 9 Tax Reimbursement Methods 10 Calculation of Estimates/Prepayments/Withholding 10 Relief for Foreign Taxes 10 General Tax Credits 11 Sample Tax Calculation 11 Special Considerations for Short-Term Assignments 13 Residency Rules 13 Payroll Considerations 13 Taxable Income 13 Additional Considerations 13 Other Taxes and Levies 14 Social Security Tax 14 Gift, Wealth, Estate, and/or Inheritance Tax 14 Real Estate Tax 15 Sales/VAT Tax 15 Other Taxes 15 KPMG in India 16 Taxation of International Executives 1

3 Overview and Introduction Taxation varies based on the residential status of the individual in a tax year. Individuals can be classified as resident, not ordinarily resident, or non-resident. Residents are taxed on worldwide income. Non-residents and not ordinarily residents are taxed only on income received, accrued, or deemed to accrue or be received in India. Consequently, their income accruing outside India or received outside India is not taxable in India, unless the same is received in India. Salary for services rendered in India is deemed to accrue in India and hence, taxable in India for all individuals, irrespective of the place of payment. The leave period before or after services rendered in India and which forms part of the employment contract is deemed to have been earned for services rendered in India. Income tax is levied based on progressive tax rates currently not exceeding 30 percent on taxable income in excess of INR 800,000. Additionally there is a levy of education cess at the rate of 3 percent on the amount of tax. The official Indian currency is the Indian Rupee (INR). For information on practical matters that employers and employees should consider with respect to an international assignment, please refer to the companion publication titled Planning Your International Transfer. For the purposes of this publication, the host country refers to the country where the expatriate is going on assignment. The home country refers to the country where the expatriate lives when he/she is not on assignment. Taxation of International Executives 2

4 Income Tax Tax Returns and Compliance When are tax returns due? That is, what is the tax return due date? An individual s tax return must be filed by 31 July immediately following the end of the tax year on 31 March. There is no provision for extension of the filing date. What is the tax year end? The tax year ends on 31 March. The income earned during a year is taxable in the following year. The year in which income is earned is known as the previous year or tax year and the year in which the income is taxable is known as the assessment year. What are the compliance requirements for tax returns in India? An individual is required to obtain a registration with the tax authorities i.e. Permanent Account Number (PAN). PAN is a unique identification number given by the Indian tax authorities. PAN is required to be quoted on all the correspondence with the tax authorities. An individual is required to file a tax return in India only if his/her taxable income exceeds the prescribed minimum exemption limit (INR 160,000). Tax is withheld at source on salaries, professional fees, rent, interest, dividends, etc. at the time such income is credited to the account of the payee or at the time of payment, whichever is earlier. In case the amount of tax to be withheld is short of the actual tax liability, an individual is liable to pay advance tax. Advance tax is payable by the taxpayer during the tax year. Advance tax payable is the tax on estimated income of the tax year, reduced by tax withheld at source. It is payable in installments as follows: Thirty percent is payable by 15 September Up to 60 percent is payable by 15 December One-hundred percent by 15 March In case of default in filing of a tax return, interest is levied on the amount of unpaid tax at the rate of 1 percent for every month or part thereof during which the default continues and is payable along with the selfassessment tax before filing of the tax return. In case of default in payment of advance tax, interest is levied on the shortfall of advance tax and the deferment of advance tax at the rate of 1 percent for every month or part thereof, during which the default occurs. Such interest is payable before filing of the tax return. Tax Rates What are the current income tax rates for residents and non-residents in India? Tax rates for individuals are common for all, irrespective of their residential status. The income tax rates for assessment year 2011/2012 (tax year 2010/2011) are as follows: Taxation of International Executives 3

5 Income tax table for 2010 Taxable income Total tax on bracket income below bracket From To Tax rate on income bracket INR INR INR Percent 0 160,000* 0 160, ,000 10% of the 10 excess over INR 160, , ,000 INR 34, % of the 20 excess over INR 500, ,001 No limit INR 30 94, % of the excess over INR 500,000 Education cess at the rate of 3 percent is payable on the amount of tax. Therefore, the effective maximum marginal rate would be percent. *INR 190,000 in case of a resident woman below the age of 65 years. *INR 240,000 in case of a resident individual of the age of 65 years or above. There is no provision for joint filing of the Return of Income. There is no distinction amongst individuals, whether married, unmarried, or having children and the same rate is applicable to all. Residence Rules For the purposes of taxation, how is an individual defined as a resident of India? An individual is said to be resident in India in any tax year if he/she is: Present in India in that year for a period or periods totaling 182 days or more. Present in India for at least 60 days or more during the tax year (182 days or more for a citizen of India/person of Indian origin on a visit to India; 182 days or more for a citizen of India who leaves India for employment abroad or as member of a crew of an Indian ship) and 365 days or more during the preceding four tax years. An individual who does not satisfy either of the above conditions is a non-resident (NR). A not ordinarily resident (NOR) is an individual who: has been non-resident in India in nine out of the 10 tax years preceding that year. has during the seven tax years, preceding that year, been in India for a total period of 729 days or less. Residents are taxed on worldwide income. However, NR and NOR are generally taxed only on Indian sourced income. Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can t come back to the host country for more than 10 days after their assignment is over and they repatriate. There is no de minimus number of days rule in respect of residency start/ end date. However an individual visiting India for the first time would remain NR if his stay during the tax year does not exceed 182 days, in case Taxation of International Executives 4

6 his/her stay exceeds 182 days then he/she would be NOR. He/She can maintain NOR status for first three year of his stay in India. What if the assignee enters the country before their assignment begins? In India the residential status is determined based on the individual's total physical stay in India during the concerned tax year, therefore the days spent in India before the start of the assignment are also to be considered for determining the residential status of the individual in India. Termination of Residence Are there any tax compliance requirements when leaving India? Subject to notified exceptions, persons not domiciled in India; who visit India in connection with business, profession or employment and who derives income from any source in India, can leave India only after getting a no objection certificate from the tax authorities to do so. The tax authorities shall give such a certificate when the person submits an appropriate undertaking from his employer/ payer of income, in respect of payment of taxes due from such person in India. However, there are no special formalities for terminating residence. What if the assignee comes back for a trip after residency has terminated? In India the residential status is determined each year based on the total physical stay of the individual in the concerned tax year. This is irrespective of the purpose of stay of assignee in India. Also, there is no concept of part residency in India. Communication between Immigration and Taxation Authorities Do the immigration authorities in India provide information to the local taxation authorities regarding when a person enters or leaves India? There is no formal system under which immigration authorities in India provide information to local taxation authorities. However, recently tax authorities have started requesting such details from the immigration authorities on a regular basis. Filing Requirements Will an assignee have a filing requirement in the host country after they leave the country and repatriate? An individual is required to file return of income only if there is taxable income in India exceeding the prescribed minimum exemption limit. This is irrespective of the presence of assignee in India. Economic Employer Approach 1 Do the taxation authorities in India adopt the economic employer approach to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in India considering the adoption of this interpretation of economic employer in the future? There are no defined rules in this respect. However, OECD commentary is commonly used by tax authorities while interpreting the treaty provisions. De minimus Number of Days 2 Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days? There are no de minimus number of days for applying the economic employer approach. 1 Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee's salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country. 2 For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the economic employer approach. Taxation of International Executives 5

7 Types of Taxable Compensation What categories are subject to income tax in general situations? In general, income from employment includes all compensation, in-cash or in-kind, which is due to or received by an employee in a tax year. Taxable compensation includes: Salary, wages, bonuses, allowances, and other cash compensation for services rendered. Income tax paid by the employer on behalf of the employee. Specified perquisites. The Finance Act 2009 had abolished Fringe Benefit Tax (FBT) with effect from 1 April As a consequence, it has restored the taxation of benefits provided by the employer in the hands of the employees. As a consequence of abolition of FBT, an amendment in the perquisite valuation rules has been notified. Certain benefits which were subject to FBT will now be taxed in the hands of the employees e.g., car expenses, payments for use of clubs, gifts, etc. Tax-Exempt Income Are there any areas of income that are exempt from taxation in India? If so, please provide a general definition of these areas. The following items of compensation are not taxable: Certain Travel/ Tour Allowances Reimbursement of medical expenses Medical expenses of an employee or any member of his/her family incurred outside India Leave travel concession Allowance granted to meet payment of rent Tax borne by the employer on non-monetary perquisites Telephone expenses Certain Travel/ Tour Allowances Allowances granted to meet the cost of travel on tour or on transfer, including sums paid in connection with the transfer, packing, and transportation of personal effects on such transfer, are exempt to the extent to which such expenses are actually incurred. Reimbursement of Medical Expenses Reimbursement of medical expenses actually incurred by the employee for himself/herself or any member of his/her family is exempt up to INR 15,000 per tax year. However, any reimbursement of costs of hospitalization in a recognized hospital in India is fully exempt. Employers contributions to health insurance plans abroad would be taxable in India only to the extent the employee has an interest in the plan vested in him/her during the tax year. Medical Expenses of an Employee or any Member of his/her Family Incurred outside India Medical expenses of an employee or any member of his/her family incurred outside India is exempt to the extent permitted by Reserve Bank of India. The cost of a stay abroad of the employee or a family member and one attendant is also exempt to the extent permitted by the Reserve Bank of India. Taxation of International Executives 6

8 Leave Travel Concession Leave travel concession granted to the employee for himself/herself and his/her family for proceeding on leave to any place in India is exempt with respect to two journeys performed in a block of four calendar years, subject to fulfillment of certain conditions. The current block is Allowances for Payment of Rent Allowance granted to meet payment of rent in respect of residential accommodation occupied by the employee is exempt, subject to certain limits. Tax Borne by the Employer on Non-Monetary Perquisites Tax borne by the employer on non-monetary perquisites provided to the employee is exempt from tax provided the employer does not claim it as a deduction against its taxable income. Telephone expenses Telephone (including mobile phone) expenses paid by the employer on behalf of the employee or reimbursed by the employer based on actual expenses of the employees is exempt from personal taxation. Expatriate Concessions Are there any concessions made for expatriates in India? Certain exemptions are available to foreign nationals and/or non-residents, subject to fulfillment of prescribed conditions. The exemptions available include the following: Remuneration for services rendered by a foreign national, employed by a foreign enterprise during his/her stay in India, is exempt if: o o o The total period of the stay in India does not exceed 90 days in a tax year. The foreign enterprise is not engaged in any trade or business in India. The remuneration is not charged to an entity subject to Indian income tax. Remuneration received by or due to a non-resident foreign national for services rendered in connection with employment on a foreign ship, where the total period of the stay in India does not exceed an aggregate period of 90 days in a tax year, is exempt from tax. Remuneration received by a foreign national working as an employee of a foreign government is exempt from tax, if the remuneration is received in connection with training activity in an undertaking, office, or company owned by the government. Remuneration from any cooperative technical assistance program in accordance with an agreement entered into by the central government with a foreign government is exempt from tax, provided: o o The remuneration is received from the foreign government. The employee is required to pay income tax to another foreign government on income arising outside India. Salary Earned from Working Abroad Is salary earned from working abroad taxed in India? If so, how? Compensation received outside India for work performed by an expatriate abroad, which is not in connection with the services being rendered in India, is not taxable in India, unless the same is received in India, where the expatriate is non-resident or resident but not ordinarily resident in India. Taxation of International Executives 7

9 Taxation of Investment Income and Capital Gains Are investment income and capital gains taxed in India? If so, how? Income from the transfer of a capital asset situated in India is deemed to accrue in India. Hence, all individuals are liable for tax on capital gains arising from the transfer of capital assets in India. Securities Transaction Tax (STT) is leviable on transactions of equity shares in a company, units of an equity oriented Mutual Fund and derivatives which are routed through any recognized stock exchange in India. Short-term capital gains (that is, capital gains on shares or any other security listed on a recognized stock exchange in India or on units of specified mutual funds held for not more than one year, and in case of other assets held for not more than three years) are taxed in the same manner as ordinary income. Short-term capital gains arising on transfer of securities liable to STT is taxed at a flat rate of 15 percent (plus education cess). Long-term capital gains arising on transfer of listed securities liable to STT is exempt from tax. Long-term capital gains from transfer of other assets are taxed at a concessional rate of 20 percent plus education cess. In determining such long-term capital gains, the cost of assets is indexed upwards for inflation as per the notified index table. Securities transaction tax leviable varies from percent to 0.25 percent of the transaction value, depending on the type of securities transacted in. Dividends, Interest, and Rental Income Dividend from shares held in Indian Companies and specified Mutual Funds are exempt from tax. However in case of a resident, dividend income from investments outside India is taxable, subject to treaty benefits. Expenses incurred specifically for earning such taxable investment income are deductible. Interest income earned in respect of the investments made in India is subject to tax in India. Also, in case of a resident, interest income from foreign investment is taxable, subject to treaty benefits. Any rental income is subject to tax in India. The expenses incurred in paying any municipal taxes and mortgage interest and a standard deduction in respect of other expenses in allowable while computing the taxable income. Gains from Stock Option Exercises As a consequence of abolishing FBT, benefit from ESOPs which was previously being taxed under the FBT regime, will now be taxed as perquisite in the hands of employees. The taxability of benefit arising out of ESOPs is triggered at the time of exercise of option. The perquisite value is determined as the Fair Market Value (FMV) on the date on which the option is exercised by the employee as reduced by the amount actually paid by, or recovered from the employee in respect of such ESOPs. FMV means the value determined in accordance with the method prescribed by the Central Board of Direct Taxes. Further, if after exercising the options, the employee holds the shares for some time and sells the same subsequently, the difference between the sale consideration and the FMV considered for calculating perquisite value would be subject to capital gains tax. Depending on the period of holding the capital gains would be considered as Short-term/Long-term. Principal Residence Gains and Losses There is no specific provision governing the taxability of Gains and Losses of principal residence. Capital Losses Subject to certain conditions, the capital losses incurred by the assignee in India can be set-off only against the capital gains during the tax year. If the loss cannot be set-off, the amount can be carried forward to subsequent tax years to be set-off against capital gains. Taxation of International Executives 8

10 Gifts Any sum(s) received (except for sums received from relatives and in certain other specified situations) by an individual from any person in cash/check/draft/any other mode or by way of credit or otherwise than as consideration for goods and services is taxable as "income from other sources". However, the total of such receipts to the extent of INR 50,000 is exempt. Additional Capital Gains Tax (CGT) Issues and Exceptions Are there additional capital gains tax (CGT) issues in India? If so, please discuss? For non-residents, capital gains arising from the transfer of shares or debentures of an Indian company are calculated in the same foreign currency as was initially used to purchase such shares or debentures and the cost inflation index is not applied to such gains. Long-term capital gains arising from the transfer of specified bonds or Global Depository Receipts issued in foreign currency are taxed at the rate of 10 percent. Exemption from long-term capital gains may be claimed by making investment in residential house and/or certain bonds, subject to specified conditions. Are there capital gains tax exceptions in India? If so, please discuss? Pre-CGT Assets Not applicable. Deemed Disposal and Acquisition Not applicable. General Deductions from Income What are the general deductions from income allowed in India? Deductions from income, subject to fulfillment of certain conditions, include: Specified donations to institutions in India: 50 percent of donation subject to 10 percent of gross income. Certain donations are eligible for 100 percent deduction. Health insurance premium payments to specified insurers: Deduction of up to INR 15,000 in respect of insurance of the individual or his/her family members. (Up to INR 20,000 in case the person insured is a senior citizen.) Additional deduction of up to INR 15,000 is available in respect of health insurance premium paid for parents of the individual. A deduction of up to INR 50,000 is available to a person resident in India suffering from disability (INR 75,000 for persons with severe disability) subject to certain conditions. Deduction of up to INR 40,000 in respect of medical treatment of a resident or his/her dependents, for specified diseases (Up to INR 60,000 in case of senior citizens). A deduction from the income of an individual not exceeding INR 100,000 is allowed with respect to sums paid or deposited in the tax year out of income chargeable to tax, in certain specified schemes. The following are some of the investments/payments qualifying for the deduction: Insurance Premium, subscription to National Savings Certificate Scheme, contribution to recognized Provident Fund or to a Public Provident Fund in India, subscription to National Saving Scheme. Repayment of a loan or payment towards cost of purchase/construction of new residential house. Subscription to units of mutual fund under specified schemes or to approved issues (proceeds to be used for development, etc. of infrastructure facilities) of equity shares/debentures made by public companies or public financial institutions in India. Taxation of International Executives 9

11 Tax Reimbursement Methods What are the tax reimbursement methods generally used by employers in India? Indian companies are not allowed to bear any tax on behalf of its employees. Therefore, normally a fixed special allowance equivalent to taxes is paid to the employees and then deposited by way of withholding taxes. In case of individual employed with foreign companies the company normally deposits the tax directly with the tax authorities by way of withholding taxes. Calculation of Estimates/Prepayments/Withholding How are estimates/prepayments/withholding of tax handled in India? For example, Pay-As-You-Earn (PAYE), Pay- As-You-Go (PAYG), etc. The India tax system runs on Pay-As-You-Earn basis in respect of salary, interest etc. Accordingly, tax needs to be withheld and deposited with the tax authorities on a monthly basis. If the taxes are not deposited on a monthly basis, there would be an interest charge at the rate of 1 percent per month leviable for all the months for which taxes have not been paid till date of the payment of tax. Also, the tax deposit due date for any month is by seventh of the next month. Pay-As-You-Earn (PAYE) Withholding Every employer has the obligation to deduct tax from employees' remuneration at the time of payment thereof. Tax is to be deducted on the estimated income of the employee after allowing for permissible deductions. Advance Tax Installments In case the amount of tax to be withheld is short of the actual tax liability, an individual is liable to pay advance tax. Advance tax is payable by the individual during the tax year. Advance tax payable is the tax on estimated income of the tax year, reduced by tax withheld at source. It is payable in installments as follows: Thirty percent is payable by 15 September Sixty percent is payable by 15 December One-hundred percent by 15 March When are estimates/prepayments/withholding of tax due in India? For example, monthly, annually, both, etc. As discussed earlier, an employer is liable to deduct tax at the time of salary payment to its employees. The tax deducted is to be deposited with the central government within seven days from the end of the month in which tax is deducted. Further, an annual certificate is required to be issued to the employee in respect of tax deducted at source, within one month from the end of the tax year. The employer is also required to submit quarterly withholding tax statements in respect of the tax deducted at source during the year. Relief for Foreign Taxes Is there any Relief for Foreign Taxes in India? For example, a foreign tax credit (FTC) system, double taxation treaties, etc? A resident in India is entitled to credit for foreign taxes paid on foreign-sourced income against the Indian tax payable on such income: Where agreement for avoidance of double taxation exists between the two countries, in accordance with the terms of that agreement; and In other cases, at the lower of the foreign or Indian rates of tax, or at the Indian rate of tax, if both the rates are equal. Taxation of International Executives 10

12 India has Double Taxation Avoidance Agreement (DTAA) with the countries listed in Annexure A. General Tax Credits What are the general tax credits that may be claimed in your country? Please list below. The Indian tax law does not have any specific provisions for tax credit. Deductions from the taxable income, subject to certain limits are available (as discussed in the earlier sections). Sample Tax Calculation 3 This calculation assumes a married taxpayer resident in India with two children whose three-year assignment begins 1 January 2008 and ends 31 December The taxpayer s base salary is USD 100,000 and the calculation covers three years USD USD USD Salary 100, , ,000 Bonus 20,000 20,000 20,000 Cost-of-living allowance 10,000 10,000 10,000 Housing allowance 12,000 12,000 12,000 Company car 6,000 6,000 6,000 Moving expense reimbursement 20, ,000 Home leave 0 5,000 0 Education allowance 3,000 3,000 3,000 Interest income from non-local sources 6,000 6,000 6,000 Exchange rate used for calculation: USD 1.00 = INR Other Assumptions All earned income is attributable to local sources. Bonuses are paid at the end of each tax year, and accrue evenly throughout the year. Interest income is not remitted to India. The company car is used for business and private purposes and originally cost USD 50,000. The employee is deemed resident throughout the assignment. Tax treaties and totalization agreements are ignored for the purpose of this calculation. Calculation of Taxable Income Year-ended Days in India during year INR INR INR Earned income subject to income tax Salary 4,402,000 4,402,000 3,301,500 Bonus 880, , ,300 Cost-of-living allowance 440, , ,150 Taxable housing allowance 268, , ,330 Moving expense reimbursement - Home leave 55, ,075 Education allowance 132, ,060 97,245 Motor Car - 39,600 29,700 Total earned income 6,178,125 6,327,775 4,622,025 Other income 264, , ,090 Total income 6,442,245 6,591,895 4,818,315 Deductions Total taxable income 6,442,245 6,591,895 4,818,315 3 Sample calculation generated by KPMG, the Indian member firm of KPMG International, a Swiss cooperative, based on the tax rates applicable as per the Indian Finance Act Taxation of International Executives 11

13 Calculation of Tax Liability INR INR INR Taxable income as above 6,442,245 6,591,895 4,818,315 30% 1,837,673 1,881,568 1,299, ,767 Education Cess 60,643 56,447 38,985 Indian tax thereon 2,082,083 1,938,015 1,338,480 Less: Domestic Tax rebates (dependent spouse rebate) Foreign tax credits Total Indian tax 2,082,083 1,938,015 1,338,480 Taxable Housing Allowance INR INR INR Actual rent (assumed INR 700,000 per 700, , ,000 year) Actual housing allowance 528, , ,180 Least of the following is exempt: Excess of rent paid over 10% of salary 259, , ,850 50% of basic salary* 2,201,000 2,201,000 1,650,750 Actual housing allowance 528, , ,180 Housing allowance exempt 259, , ,850 *Assuming that the expatriate is residing in a Metro city. In case of a non-metro city, the percentage is 40 percent. Calculation of Perquisite Value in hands of employee INR INR INR Company car 264, , ,090 Perquisite Value 52,824 39,600 29,700 Fringe benefit Tax (For 2008)/ Tax (for 15,847 11,880 8, and 2010) Add: Surcharge (not applicable for 1,585 Nil Nil 2009 and 2010) Add: Education Cess Total Fringe Benefit Tax / Income Tax 17,955 12,236 9,178 Total Tax Burden INR INR INR Total Indian tax 2,082,083 1,938,015 1,339,036 Total Fringe Benefit tax (for 2008) / 17,955 Income Tax (For 2009 and 2010) Total tax burden 2,100,038 1,938,015 1,339,036 Taxation of International Executives 12

14 Special Considerations for Short-Term Assignments 4 Residency Rules Are there special residency considerations for short-term assignments? An individual who does not exceed 182 days in a particular tax year or 60 days in the relevant year and 365 days in the last four tax years, shall be considered as a non-resident in India. Accordingly, he/she shall be taxable only in respect of income earned for services rendered in India. Payroll Considerations Are there special payroll considerations for short-term assignments? There are no special payroll considerations for short term assignments. Taxable Income What income will be taxed during short-term assignments? An individual is taxed in respect of income earned for services rendered in India irrespective of his/her residential status. However, in case of an individual on a short term assignment in India, short stay exemption may be claimed in respect of India taxes subject to the fulfillment of the prescribed conditions in the relevant Double Taxation Avoidance Agreement/Domestic tax law. Additional Considerations Are there any additional considerations that should be considered before initiating a short-term assignment in India? Depending upon the treaty provisions short-term assignments can be planned in a manner so as to avail the short stay exemption. 4 For the purposes of this publication, a short-term assignment is defined as an assignment that lasts for less than one year. Taxation of International Executives 13

15 Other Taxes and Levies Social Security Tax Are there social security/social insurance taxes in India? If so, what are the rates for employers and employees? A new concept of International Workers 5 (IW) has been introduced (effective from 1 November 2008) which includes expatriates (foreign passport holders) working for an employer in India and the Indian employees working overseas. The IW(s) would be required to become members by joining the Provident Fund (PF) Scheme and the Pension Scheme. A relief has been provided in case of Excluded Employee 6 which primarily refers to IWs coming from a country with which India has entered into a social security agreement. Broadly, with respect to every IW, other than an Excluded Employee, both the IW and the employer would be required to make contributions as per the PF Act. Hence, all IWs are now required to become members of the PF Scheme, the Pension Scheme and EDLIS unless they qualify as Excluded Employees. Accordingly, it is now mandatory (subject to applicability of PF Act) for an IW who does not qualify as an Excluded Employee to contribute to the PF Scheme at the rate of 12 percent of his salary. The employer is also required to make a matching contribution of 12 percent. Gift, Wealth, Estate, and/or Inheritance Tax 7 Are there any gift, wealth, estate, and/or inheritance taxes in India? There is no estate tax levied in India. Wealth-tax is chargeable at the rate of 1.03 percent (inclusive of education cess) of the net wealth of the individual, exceeding INR 3 million, as on the last date of the relevant tax year (that is, 31 March). Individuals having taxable wealth are also required to file the wealth tax return annually. Foreign citizens are taxable only in respect of their net wealth located in India irrespective of their residential status. Individuals/ Hindu Undivided Families who are non-residents/ resident but not ordinarily resident in India and Companies who are non-resident in India, are taxable only in respect of their net wealth located in India. The assets liable for wealth tax are: Residential House (more than one) Motor car Jewelry, bullion, utensils of gold, silver, etc. Yachts, boats, and aircrafts Urban land Cash in hand in excess of INR 50,000 There is no gift tax payable by donor. However, income includes any sum(s), received without consideration (except for sums received from relatives, on occasion of marriage, by inheritance, etc.), by an individual, from any person, if the same exceeds INR 50,000 in a year. Further, any gift-in-kind, being an immovable property or any other property, the value of which exceeds INR 50,000, will become taxable in the hands of the recipient. 5 As per the Notification dated 1 October, 2008 International Worker means: (a) an Indian employee having worked or going to work in a foreign country with which India has entered into social security agreement and being eligible to avail benefits under a social security programme of that country, by virtue of the eligibility gained or going to gain, under the said agreement; and (b) an employee other than an Indian employee, holding other than an Indian passport, working for an establishment in India to which the PF Act applies. 6 As per the Notification dated 1 October, 2008 Excluded Employee means an International Worker, who is contributing to a social security programme of his/her country of origin, either as a citizen or resident, with whom India has entered into social security agreement on reciprocity basis and enjoying the status of detached worker for the period and terms, as specified in such an agreement. 7 Indian Wealth Tax Act, Taxation of International Executives 14

16 Real Estate Tax Are there real estate taxes in India? Property tax / real estate tax is payable as per local municipal laws on commercial and residential property owned. Sales/VAT Tax Are there sales and/or value-added taxes in India? Customs duty is payable on certain specified goods bought into India and other indirect taxes such as sales tax, expenditure tax and service tax are payable on purchase of goods and services. Other Taxes Are there additional taxes in India that may be relevant to the general assignee? For example, customs tax, excise tax, stamp tax, etc. Profession Tax Certain states in India levy a profession tax on employees. This tax is to be withheld from salary by the employer and is also deductible in computing the taxable income of the employee. Taxation of International Executives 15

17 KPMG in India Delhi Vikas Vasal 8th Floor,, Building No.10, Tower BDLF Cyber City, Phase II Gurgaon Harayana India Tel Fax Taxation of International Executives 16

18 kpmg.com The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. The material contained within draws on the experience of KPMG tax personnel and their knowledge of local tax law in each of the countries covered. While every effort has been made to provide information current at the date of publication, tax laws around the world change constantly. Accordingly, the material should be viewed only as a general guide and not be relied on without consulting your local KPMG tax adviser for the specific application of a country's tax rules to your own situation.

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