Moving to... India

Welcome to your tax information guide on moving to the India. Our detailed Q&A guide has been split into 6 key areas in order to help you find the information you need – quickly and easily!  If you require further help, simply click here to contact us.

This guide is for reference only and professional tax advice should be taken before any action is taken.

Before/Once you arrive

Q. Do I need a work permit to work in India?
A.  Yes. All foreign nationals (except citizens of Bhutan and Nepal) require a valid employment visa.

Q.  Should I complete any documentation upon arrival in India?
A.  If you are a foreign national (other than Pakistan national or Afghanistan national) and enter India on an employment visa which is valid for more than 180 days, you need to obtain a registration certificate or residential permit from the foreign regional registration offices in the four metropolitan cities or, at state level, from the foreigners registration office of the respective state. The registration certificate must be obtained within fourteen days of your arrival in India. The registration certificate is required to be endorsed by the authorities prior to your departure.

Q. Should I open an offshore bank account or is it OK to have an account on the Indian mainland?
A. Indian Exchange Control Regulations impose certain restrictions on the movement of currency out of India, and therefore the question of whether you should open an offshore account will depend upon your residence status in India under the foreign exchange regulations.

A person resident in India can remit sums outside India, which are permissible under the exchange control regulations.

Foreign nationals resident in India, who are employees of a foreign company and are on secondment to India may be paid 75% of their net salary abroad, with the balance paid in India.

It should be noted that a non-resident of India can open a Non-Resident Ordinary (NRO) bank account, but that balances in these accounts are not eligible for remittance outside of India without approval of the Reserve Bank of India.

Tax - Basics

Q.  What is the tax year?
A.  1 April to 31 March.

Q. How will I be taxed in India?
A.  Taxes are levied at the national level by the Central Government and at the State level by the State Governments.

There are three categories of tax residence in India. If you are resident and ordinarily resident then you are taxed on worldwide income.  If you are non-resident then you are subject to Indian tax only on income arising in or received in (or deemed to arise in or to be received in) India.  If you are resident but not ordinarily resident you are taxed as non-resident, except that you will also be subject to Indian tax on income arising outside India from a business controlled, or a profession set up, in India.

Employment income is considered to arise in India if it is in respect of services rendered in India, or is for a leave period, which is preceded and succeeded by services rendered in India, and forms part of your service contract of employment.

Other income from specified sources is exempt from tax, including:

• Interest on the Public Provident Fund

• Interest on relief bonds

• Interest on certain bonds of public sector companies

• Dividend received from domestic companies

• Long-term capital gains on transfer of eligible equity share in a company purchased between 01 March 2003 and 29 February 2004

• Income from specified mutual funds

• Tax bone by employer on non-monetary prerequisites

Most other interest is taxable at normal graduated rates.  Dividends from foreign payers are taxable at normal graduated rates.

Q. How is tax residence determined?
A. You will be resident for a particular year if either of the following conditions is satisfied:

• You are present in India for 182 days or more in the year; or

• You are present in India for 60 days or more, and within the four previous years you have been in India for a total of 365 days or more. 

The 60-day requirement is relaxed to 182 days for Indian citizens leaving India as crew members of an Indian ship or for the purpose of employment outside India.  The 60-day requirement is also relaxed to 182 days for citizens or persons of Indian origin who come from outside India for a visit in a particular year.

You are not ordinarily resident for a given year if either of the following conditions is satisfied:

• You have not been resident in India for 9 of the previous 10 years; or

• Your presence in India during the previous 7 years has been less than 730 days.

If none of the above conditions are satisfied, you are ordinarily resident in India for the given year.

Q. Are there any regional or state taxes?
A. There are no provincial, municipal, or local income taxes.  Municipalities levy property taxes to support municipal services such as garbage removal. Professional tax is levied in several states like Maharashtra, Orissa. This is usually a small amount.

Q. Can I file a joint tax return with my spouse?
A. No. Individuals must file their own tax returns. Spouses are taxed separately on their respective incomes, except for two classes of income which are attributed to the other spouse:

• Income from assets which were transferred from the other spouse for less than adequate consideration; and

• Income from a concern in which the other spouse has a substantial interest, unless the recipient spouse is technically or professionally qualified.

Income of a minor child is taxed to whichever parent has the higher income.

Q.  What rate of tax will I pay in India?
A.  Year Ending 31 March 2004

Where the income of the individual exceeds Rs.850,000 the surcharge will be at the rate of 10 % on the total tax liability.

Q. Can I claim a tax deduction for charitable contributions?
A. 50% of charitable donations made to approved funds are deductible. The maximum amount of donation in respect of which deduction can be claimed is restricted to 10% of total taxable income exclusive of this deduction.
 
Some specified funds set up by the Central or State Government are eligible for 100% deduction.
 
No such deduction will be allowed against long-term capital gains.  

Q. Are any other tax deductions available?
A. Other deductions and allowances include the following:

• A deduction from employment income which depends on the salary level:
     - Up to Rs 500,000:  the lesser of Rs 30,000 and 40 % of salary.
     - Exceeds Rs  500,000: Rs 20,000 

• Professional  tax paid

• Medical insurance premiums to a maximum of Rs 10,000

• Medical expenses reimbursed to a maximum of Rs 15,000

• Interest payable on the amounts borrowed for acquiring, constructing, repairing, renewal or reconstruction of house property, with the maximum deduction for self occupied property being Rs 30,000. If certain specified conditions are fulfilled, then the deduction of interest on capital borrowed in respect of a self occupied residential house will be Rs 1500,000

• The first Rs. 12,000 of interest from banks and other specified investments and additional Rs 3,000 in respect of interest on any security of Central or State Government

• Lower of tax payable and Rs 5,000 for a woman resident in India and below the age of sixty-five years

• Depending upon the income level a tax credit is allowed in respect of contributions to a provident fund and of certain other payments as follows:

• For income up to Rs.150,000 – 20% of investments (maximum rebate Rs.20,000).

• For income Rs.150,001 to Rs.500,000 – 15% of investments (maximum rebate Rs. 15,000).

• For income above Rs.500,000 – Nil

Q. I will also be paying tax in my home country. Am I being taxed twice?
A. No. Subject to fulfilment of certain conditions, a foreign tax credit will usually be claimed on your home country tax return for Indian taxes paid on Indian-source income. Alternatively, an exemption of income may be claimed on your home country tax return.

Likewise, in certain circumstances, a foreign tax credit may be claimed on your Indian tax return for foreign taxes paid on foreign sourced income.

The method of mitigating double taxation will depend upon your home country’s domestic tax legislation, and the existence of any tax treaty between India and your home country for avoidance of double taxation.

Tax - Administration

Q.  Do I need to file an Indian tax return?
A.  Every individual who has income liable to Indian tax is required to file a tax return. Other individuals must also file a return if certain circumstances apply.

Q. When does it need to be filed?
A. Income tax returns for a fiscal year (ending March 31) must be filed by July 31, except that returns where the accounts are subject to audit must be filed by October 31. 

Q. Can the filing deadline be extended?
A. There is no provision for extension of return deadlines.

Q. What is the procedure for paying tax?
A. Tax is withheld by employers from wages based on estimated annual income and deductions. In respect of other income, tax is required to be paid in advance in instalments on 15 September, 15 December and 15 March. For deferment in payment of advance tax, interest at the rate of 1% per month is payable. Further, a shortfall in the payment of aggregate advance tax is subject to interest of 1% per month.  Late filing of the return entails additional interest of 1% per month.

Tax - Income from Employment

Q. Will non-cash compensation be taxable (e.g. housing)?
A. There are some concessions available on housing. Unfurnished employer-provided housing is normally valued at 10% of the employee’s salary where the accommodation is located in a city whose population exceeds 400,000, or 7.5% of the employee’s salary where the accommodation is located in a smaller city.  Where the accommodation is leased, the value is the lesser of 10% of salary or the lease cost. For furnished accommodation, the value of unfurnished accomodation shall be increased by 10% of the cost of furniture. In computing the value accomodation prereqisites the rent actually paid by the employee shall be reduced. For hotel accomodation (except for fewer than 15 days), the value is the lesser of actual cost and 24% of salary.
 
In certain circumstances Medical Premium payments, Club Subscriptions and Moving expenses are non-taxable.

All fringe benefits received by an employee are non-taxable if the salary received in cash by the employee does not exceed Rs 50,000. The amount incurred towards the cost of medical treatment outside India is exempt.

Q.  I will be working in different countries while living in India. Will all of my employment income be taxable in India?
A. This will depend upon your residence status.

If you are resident and ordinarily resident you will be taxed in India on your worldwide income including employment income.

If you are a non-resident you will be subject to Indian tax only on income arising in or received in (or deemed to arise in or to be received in) India. Employment income is considered to arise in India if it is in respect of services rendered in India.

If you are resident but not ordinarily resident you are taxed as a non-resident, except that you will be subject to Indian tax on income arising outside India from a business controlled, or a profession set up, in India.

Tax - Other

Q. Will I pay Indian tax on investments and rental income generated in my home country?
A. This will depend upon your residential status in India. If such income is also taxed in India a foreign tax credit may be claimed on your Indian tax return against tax on foreign-sourced income subject to fulfilment of certain conditions. The tax credit may alternatively be claimed in the home country if domestic tax laws of home country so provide.
 
An exemption may be claimed in India if the tax treaty between India and the home country so provide.

Q. Is there a Capital Gains Tax (CGT) regime in India?
A. Yes. the rate for long-term capital gains is 20% plus surcharge at 10% of tax if income exceeds Rs 850,000, while that for short-term capital gains is the rate per the applicable band of income. Short-term capital gains means capital gains arising from the transfer of asset held for a period of up to twelve months, for assets being security listed in a recognised stock exchange in India, unit of Unit Trust of India or Unit of Mutual Fund registered under the Securities and Exchange Board of India and for a period up to thirty-six months for other assets.

A long-term capital gain from the disposal of a residential property is normally exempt if;

(1)  You re-invest the capital gain in another residential property within a period of one year before or two years after the disposal and do not sell the new property within three years of acquisition or
(2)  You construct another property within a period of three years after the disposal and do not sell the new property within three years of construction.

The amount earmarked for investment in the new property must be deposited in a specified bank account until used.  If the new property is sold within three years, in computing the capital gains on new property, the cost of new property shall be reduced by the amount of capital gains exempted earlier. The investment in house shall be subject to exchange control regulations in case of persons not resident in India under the Indian Foreign exchange Management Act.

Similarly, a long-term capital gain on the disposal of an asset other than residential property will be exempt if;

(1)  You invest the consideration in a residential property within a period of one year before or two years after the disposal and do not sell the new property within three years of acquisition; or
(2)  You construct another property within a period of three years after the disposal and do not sell the new property within three years of acquisition.
 

You should not be an owner of more than one residential house (other than the new house) at the time the original asset was sold. Further, apart from the new house acquired as above, you should not acquire a residential house within a period of one year or construct a residential house within a period of three years after the transfer of original asset if new house is chargeable to the income from house property. In the event that you fail to comply with any of the above conditions, the long -term capital gain originally exempted becomes taxable in the year in which such a failure occurs.

(3)  You invest in specified bonds within six months after the date of the transfer and do not sell such bonds with three years of acquisition, to the extent of capital gains invested.
(4)  You invest in eligible issue of capital within six months after the date of transfer and do not sell such bonds within one year of acquisition, to the extent of capital gains invested.

The investments as stated above shall be subject to exchange control regulations in case of persons not resident in India under the Indian Foreign Exchange Management Act. 

There is a system of indexation that serves to increase the cost base of an asset in order to account for inflation, in certain situations.

Capital losses are generally not deductible against other income, but may be carried forward for use against capital gains realized up to 8 years following the loss.  Further, loss on long-term capital assets may be set off only against gain on long-term assets and cannot be set off against the gain on short-term assets. However, short-term capital loss can be set-off against long-term capital loss.

Note that when a loss is incurred, and the associated income tax return is not filed on a timely basis, the loss is deemed not to have occurred.

Q. What do I need to know about any other tax regime, e.g. Inheritance, Estate or Wealth tax?
A. Wealth Tax

Wealth tax is levied on specified assets and categories of persons.  Persons subject to wealth tax are generally individuals, Hindu undivided families, and companies.  The assets chargeable to wealth tax are:

• Residential houses, guesthouses and farm houses within 25 kilometeres from local limits of municipality. Houses allotted by a company to employees drawing remuneration less than Rs 500,000 are exempt.  One house belonging to an individual is also exempt.

• Motorcars, boats, yachts and aircraft other than those used for commercial purposes.

• Jewellery, bullion, furniture, utensils gold, silver, platinum and any other precious metal. 

• Urban land.

• Cash on hand in excess of Rs 50,000 in the case of individuals and Hindu undivided families, and any amount not recorded in the books of account in the case of companies.

• The above shall not include (for a period of seven years) moneys and assets brought by a person of Indian origin or a citizen of India on his return to India with the intention of permanently residing in India subject to certain conditions.

• All other assets are exempt from wealth tax.

The chargeable assets are to be valued as per specified rules of valuation.  Debts incurred in relation to such assets are allowed as a deduction in computing the net wealth.  The wealth tax is levied on the net wealth as on 31 March of each year.

The first Rs 1.5 million of net wealth is exempt from wealth tax.  The balance of net wealth is chargeable to tax at a rate of 1%.

Individuals ordinarily resident in India and companies resident in India are subject to wealth tax on their worldwide wealth.  In the case of individuals who are non-resident or not ordinarily resident and companies that are non-resident, the assets and debts located outside India are not taken into account.

The wealth of a minor child is aggregated with the wealth of the parent whose wealth is greater.

There is no inheritance tax or gift tax regime in India. Many documents are subject to Stamp Duty. There are other miscellaneous taxes such as the Expenditure tax, Central sales tax, Local sales tax, Service tax and the Profession tax.

Partial value added tax has been introduced in the state of Haryana from 1 April 2003. It is proposed that value added tax will be introduced in other states in the future.