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Expat Tax Calculation & Rate of Taxation

Know all about expatriates’ taxation, residential status of expats, Tax deducted at source for expatriate salaries and the applicable rates.

Who is Expat or Expatriate?

Expatriates are people who are staying in a country other than their country of origin, either temporarily or permanently. They are those employees who are transferred to their foreign offices for work.

Expat Tax in India

In India, the income earned by foreign expatriates is deemed to be received in India for services rendered by him as per section 9(1)(ii) of Income Tax Act. It is assessable under the Income head ‘salaries'. It is clarified by the explanation to the said section that salary income payable for services provided in India is considered as income earned in India.

The residential status won’t make a difference on the tax liability on the salary income earned by rendering services in India. Rule 15 will be applicable for the conversion of salary income in Indian currency. The telegraphic transfer buying rate on the last day of the month in which the salary is due or paid is taken as conversion rate.

TDS will also apply to the income irrespective of the place where the wages are received. The salary is converted into Indian currency in case paid in foreign currency, for calculating tax deduction. The conversion is done at the telegraphic transfer buying rate adopted by SBI on the date of the tax deduction. The above rule of conversion is only applicable for TDS determination.

The tax burden is borne by the company of the expatriates and not the employee. Hence the concept of grossing up of income arises in the case of expatriate taxation. For instance, if salary is Rs. 1000 and tax Rs. 200, then total amount to be paid to expatriate will be Rs. 1200. Tax is payable on Rs. 1200 and not on Rs. 1000. Hence, the salary of expatriates is considered as net salary plus tax liability on it.

Rates of Taxation

The rates applicable for expat tax are the slab rates for non-residents as per the Income Tax Act prevailing in the country.