Income Tax in India
What is the Indian tax year?
The Indian tax year starts on 1st April and ends on 31st March of the succeeding year.
Must I pay taxes? Is there a special tax regime for expats?
Any expat employee who has stayed in India for more than 90 days must pay tax on his entire income, irrespective of whether he receives it in India or outside of India. However, if your home country has entered into a Double Taxation Avoidance Agreement (DTAA) with India, the residency aspect may be resolved under the tie breaker clauses of the relevant DTAA. There is no special tax regime for expatriates in India.
What is the Taxation Rate in India?
Individuals are taxed on a graduated scale after certain deductions and allowances.
- Up to Rs 200,000 – NIL
- Rs 200,001 to Rs 500,000 – tax rate: 10%
- Rs 500,001 to Rs 1,000,000 – tax rate: 20%
- Above Rs 1,000,000 – tax rate: 30%
How often and when are taxes deducted from income?
Under Indian tax laws, employers are required to deduct tax “at source” from the employee’s salary and deposit the same into the government treasury. When you start working with your Indian employer, tax based on your estimated income for the relevant tax year should be calculated and deposited with the government treasury on a monthly basis.
When must I file taxes?
You will be required to file a tax return with the Indian Tax Authorities on or before July 31st of each tax year, even if all the taxes have been deducted at source.
Where can I file my taxes?
You can file your taxes online at http://www.taxsmile.com or file an e-return through the Government of India’s website at http://www.incometaxindia.gov.in/
You can download a helpful booklet in pdf form about filing your tax return at http://www.incometaxindia.gov.in/Archive/Filing_Your_Tax_Return.pdf
What if I have two sources of income?
A foreign national having income other than salary taxable in India is required to pay tax in advance in three installments: First installment paid on or before September 15; second installment paid on or before December 15; third installment paid on or before March 15.
What if part of my salary is paid in India and part of it is paid in another country?
Some multinationals pay two kinds of salaries to expats — one paid in India and the other paid in their home country. Employees sometimes ask for a tax equalized package where the tax payable in India on their salary and perquisites is borne by the employer. This is to ensure that they remain tax neutral in respect to their Indian assignment. Make sure to discuss this option with your employer when you are negotiating your overseas contract.
How do Indians define “salary?”
Salary includes both cash components and perquisites provided to an employee in connection with his Indian assignment. Cash components are fully taxable in India. Certain perquisites such as housing and furnishings are taxable on concessional basis.
What are India’s social security laws?
India does not have any social security law in place. The tax laws in India do not provide for any special provision for taxation of contributions, if any, made by the employer towards social security or other pension/benefit schemes in the home country of the expatriates.
What about taxation of stock options?
Perks like employee stock options (Esops) can raise a significant issue, as some countries tax Esops when exercised, while India taxes Esops as soon as they are vested.
Leaving India
When you leave Mumbai, you will be required to supply the Income Tax Authorities with an undertaking from your employer stating that the tax payable by employee shall be paid by employer. On the basis of said undertaking, the Income Tax Authority will grant a “No Objection Certificate” to the employee so that he or she can leave the country. Your employer should take care of the necessary paperwork.
