Who is an Expatriate–
Expatriate is one who left his/her home country and moved to the other country for work during the year. It can be in two ways one who comes to India is called Inbound employee and who leaves India for the purpose of employment called as Out bound employee:
Importance of Residential status in India:
Unlike the taxability based on citizenship in few countries, in India the taxability is based on Residential status in India. Our tax year starts from April 1 to March 31 and the tax return needs to be filed on before July 31st of the succeeding tax year.
The taxation will vary based on your residential status in India
If a person stays in India for more than 183 days
Stay in India for the immediately 4 preceding years is 365 days or more and 60 days or more in the relevant financial year.
Then if additional conditions satisfied then he will be considered as Resident and Ordinarily Resident and global income is taxable in India in other case will be considered as Resident but not ordinarily resident and only income received in India or accrued in India will be taxable in India.
He has been a resident of India in at least 2 out of 10 years immediately previous years
he stayed in India for at least 730 days in 7 immediately preceding years
Compliance from employee perspective
Obtain the correct VISA for working in India or moving out of India
Ensure the FRRO registration if applicable and even update the local police station in case of change of place from the initial registration.
Obtain the Permanent Account Number (PAN) and Social Security number (PF Number) if not held by the employee.
Submit the proof of investments / income from other than current employer/other income which needs to be captured in the withholding tax calculation
File form 67 if any foreign tax credit claimed during the year before filing the India tax return
Filing of the India tax return before the due date to avoid penalty and carry forward of losses to the future years.
Compliances from Employer Perspective:
Providing necessary documentation for the VISA process
Assisting the foreign employer for the FRRO registration within 14 days from the arrival
Depositing the salary after withholding the income tax, social security contribution
Calculating the ESOP valuation if applicable
Filing of the withholding tax returns considering the expatriate employees
Issuing the withholding tax certificate
Impact of non- filing or incorrect filing
IF the employee is unable to file the return before the due date, he may need to pay the penalty and lose the opportunity to carry forward the loss.
Incorrect information may lead to concealment of income and penalty will be levied by the tax authorities
Incorrect information leads to wrong claiming of foreign tax credit and incorrect tax credit claim which leads to non-acceptance of the return by the tax authorities and demand with penalty will be levied.
Investments under 80 C – for India Income Tax authorities-
Amount up to Rs 1.5 lakh can be invested by the Individual to claim the deduction under sec 80C of the Act. There are multiple options like LIC, Tax saving deposits, NSC, Tuition fees, Interest on the housing loan etc.
Disclosure of foreign Assets by Residents –
Once an Individual is considered as Resident, he is supposed to disclose the foreign assets/liabilities as per the Income tax return form applicable to them. Non-disclosure and wrong disclosure will amount to penalty, fine and imprisonment under various sections as per the Black Money ( Undisclosed Foreign income and assets) and imposition of tax Act, 2015 which came into effect from April 1, 2016.
Transfer of funds by expatriate:
Once the amount which are genuinely taxed in the respective countries based on the tax laws prevailing. The limit of transfer of funds to outside India and to India will be governed by the FEMA and RBI guidelines in place.
An Indian resident can hold foreign bank accounts outside India but the same needs to be disclosed in the ITR form based on the applicability and needs to offer the income arise out of the same in the India tax return.
In the NRE account the person hold the funds in foreign currency and in NRO account he can deposit both Indian and foreign currency.
Basically, NRE account is maintained to park the foreign funds in India and NRO account is maintained to get the credits from the Indian sources like rent, dividend, interest etc.