expatriate taxation 1
TRANSCRIPT
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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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