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Group 2

11th

February 2012

Group 2

11th

February 2012

Expatriate TaxationExpatriate Taxation


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ContentsContents

General Overview of Expatriate tax regime in

India:

Residency RulesResidency Rules

Section 90Section 90

Computation of Tax CreditComputation of Tax Credit

Tax EqualizationTax Equalization


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Residential statusResidential status

Residential status

Resident

Resident andOrdinarily Resident

(ROR)

Resident but NotOrdinarily Resident

(NOR)

Non Resident

(NR)

Residency is determined by physical number of days stay in India


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Residential status ..ContdResidential status ..Contd

None of the

conditions

satisfied

Any one of

the two

conditions

satisfied

ROR / NOR NR

Basic conditions:Basic conditions:

182 days or more in a financial year182 days or more in a financial year

60 days* or more in a financial year plus 365 days or more in four60 days* or more in a financial year plus 365 days or more in fourfinancial years preceding the relevant financial yearfinancial years preceding the relevant financial year

*60 days gets substituted for 182 days only in the year of departure for an Indian citizen proceeding abroad for the purposes

of employment. In the year of arrival to India for resuming employment, the threshold limit is 60 days.


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Residential status ..ContdResidential status ..Contd

Additional conditions:Additional conditions:

Resident in India in atleast two out of ten financial years precedingResident in India in atleast two out of ten financial years precedingthe relevant financial year; andthe relevant financial year; and

Present in India for 730 days or more during the 7 financial yearPresent in India for 730 days or more during the 7 financial yearpreceding the relevant financial yearpreceding the relevant financial year

ROR NOR

Both the

conditions

satisfied

One or

none of the

conditions

satisfied

Generally, an expatriate coming to India for the first time will qualify as ROR in the 3rd or4th year.


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IllustrationIllustration

Date of first arrival into India 5 April 2008

Date of departure from India 31 December2011

Tax Year Days Cumm.

stay

Res.

status

Remarks

20082008--0909 361361 361361 NORNOR Not a resident in 2 out of 10 precedingNot a resident in 2 out of 10 preceding

years; andyears; and< 730 days in the 7 preceding years< 730 days in the 7 preceding years

20092009--1010 365365 726726 NORNOR -- dodo --

20102010--1111 365365 10911091 NORNOR Resident in 2 out of 10 precedingResident in 2 out of 10 preceding

years; butyears; but

< 730 days in the 7 preceding years< 730 days in the 7 preceding years

2011-12 275 1366 ROR Resident in 2 out of 10 preceding

years; and

> 729 days in the 7 previous years

NR/ NOR Taxed in India only on Indian sourced income

ROR Taxed in India on worldwide income


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Section 90 of The Income Tax Act,1961Section 90 of The Income Tax Act,1961

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Section 90. AGREEMENT WITH FOREIGN COUNTRIES.

(1) The Central Government may enter into an agreement with the Government

of any country outside India -

(a) For the granting of relief in respect of income on which have been paid bothincome-tax under this Act and income-tax in that country, or

(b) For the avoidance of double taxation of income under this Act and under the

corresponding law in force in that country.

(2) Where the Central Government has entered into an agreement with theGovernment of any country outside India under sub-section (1) for granting relief

of tax, or as the case may be, avoidance of double taxation, then, in relation to

the assessee to whom such agreement applies, the provisions of this Act shall

apply to the extent they are more beneficial to that assessee


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Tax TreatiesTax Treaties

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Define which taxes are covered and who is a resident and eligible for benefits,

reduce the amounts of tax withheld from interest, dividends, and royalties paid

by a resident of one country to residents of the other country,

Limit tax of one country on business income of a resident of the other country tothat income from a permanent establishment in the first country,

Define circumstances in which income of individuals resident in one country will

be taxed in the other country, including salary, self employment, pension, and

other income,

Provide for exemption of certain types of organizations or individuals, and

provide procedural frameworks for enforcement and dispute resolution.


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Computation Of Tax CreditComputation Of Tax Credit

RsTaxable income in India: 576,040

Tax on this income 79,116

Doubly Taxed Income (DTI) 330,774

Income Tax paid in the foreign country ( A)

Income excluding DTI (576040-330774) 245,266

Tax payable had DTI not been included 8,782

Attributed Tax on DTI (79,116- 8,782) (B) 70,334

Foreign taxes available in India as credit as per Article xx of

India-xxx DTAA (lower of A orB) 67,015


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Overview of Tax Equalization/ ProtectionOverview of Tax Equalization/ Protection

Home

Country

Income Tax

Tax

EqualizationCost

Hypothetical

Home

CountryIncome Tax

Host and

Home Actual

Income Taxes


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Case StudyCase Study

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HOME COUNTRY: INDIA HOST COUNTRY: US Rs

GLOBAL INCOME; HOME(70),HOST(30) 100

Home Country Income Tax: (30% on 100) 30

Host & Home Country Income Tax 40

Hypothetical Home Country Income Tax (30% on 80) 24

Tax Equalisation (40-24) 16


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THANK YOU :THANK YOU :--))

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