TAX PROVISIONS FOR EXPATRIATE INDIANS

The tax liability related to expatriates working outside the India would be determined based on their residential status. The following are the main categories of Non-Resident Indians as per Income Tax Act, 1961
1) Non-Resident Indian (NRI)
a) He/She is not in India for 182 days or more during the relevant previous year
b) He/She india for 60 days or more during the previous year and he/she is not in India for 365 days or more during the 4 years prior to the previous year
c) In the case of an individual on visit to India or a member of the crew of an Indian ship or a person leaving India for employment outside India, the requirement of stay in India of 60 days in condition 2 above is extended to 182 days.

2) Resident but not Ordinarily Resident (RNOR)

A NRI who has returned to India for good is covered under the provisions of section 6(6) of the Income-tax Act. He is given a special status of RESIDENT BUT NOT ORDINARILY RESIDENT (RNOR) if he satisfies one of the following conditions:
a) He is not a resident, as per the above provisions, for at least 9 out of 10 previous years prior to the previous year under consideration.
b) His stay in India during the 7 previous year prior to the previous year under consideration should not be 730 days or more

Tax Liabilities Thus according to condition in clause (a) a new comer to India would remain ‘not ordinarily resident’ in India for the first 9 years of his stay in India. Similarly, in case where a person who is resident in India goes abroad and ceases to be a resident in India for atleast 2 years, he shall, on his return, be treated as not ordinarily resident for the next 9 years. ies of each category of Individuals

Based on the residential status of payer, his/her tax liability will be as follows:-

a) Resident - All income of the previous year wherever accruing or arising or received by him including incomes deemed to have accrued or arisen.
b) Non-Resident Indian - All income accruing, arising to or deemed to have accrued or arisen or received in India.
c) Resident but not Ordinary Resident - All Income accruing or arising or deemed to have accrued or arisen or received in India. Moreover, all income earned outside India will also be included if the same is derived from a business or profession controlled or set up in India.

3) Special Provisions Relating to Non-Residents
Chapter XIIA of the Income Tax Act deals with special provisions relating to certain incomes of non-residents. Sec. 11 5D deals with special provisions regarding computation of investment income of NRIs. Section 11 5E relates to investments income and long term capital gains of NRIs, such income being taxed at concessional flat rates. As per section 11 5F, capital gain is not chargeable on transfer of foreign exchange assets under certain circumstances. The NRIs need not file their return of income if their total income consist only of investment income or long term capital gains or both and proper tax has been deducted from this income(Sec. 11 5G). Benefits under this chapter are available even after the assessee becomes a resident (Sec. 11 5H). The provisions of this chapter would not apply if the assessee so chooses (Sec. 115I).

4) DTAA -Double Taxation Avoidance Agreement
The Central Government acting under the authority of Law(Sec. 90) has entered into DTAAs with more than 80 countries. Such treaties serve the purpose of providing protection to the tax payers from double taxation. As per section 90(2), in relation to an assessee to whom any DTAA applies, the provisions of the Act shall apply only to the extent they are more beneficial to the assessee. The provisions of these DTAAs thus prevail over the statutory provisions. For availing the benefits under DTAA the NRIs need to complete certain formalities for example for getting the reduced rate of tax deduction from bank interest (NRO deposits), they need to submit certain declaration with their banks before the starting of the each financial year.

To avail benefit of lower rates of tax as per double taxation avoidance treaty entered in by India, NRIs need to submit the Residency Certificate issued by Tax Authorities of the country of his residence. These documents should be submitted to the designated bank branch at the time of opening the bank account or subsequently. New TDS rate shall be applied only after the acceptance of the Residency Certificate by the designated banker.

5) Indian Residents posted abroad for employment
Indian residents who have taken up employment in countries with which India has got DTAA are entitled to the benefit of the DTAA entered into by India with the country of employment. Accordingly, their tax liability is decided. Indian expatriates working abroad have been granted several special tax concessions under the Act. Professors, teachers and research workers working abroad in any university or any educational institutions are entitled to deduction of 75% of their foreign remuneration provided the same is brought into India in convertible foreign exchange within a period of 6 months from the end of the previous year or such extended time as may be allowed(Sec. 80-R). Similarly, in case of an Indian Citizen having received remuneration for services rendered outside India, 75% of his foreign remuneration is deductible from his taxable income provided such remuneration is brought to India in convertible foreign exchange within the time specified above (Sec. 80 RRA). From assessment year 2001-2002 onwards, there has been a change in the amount of deduction available under sections 80R/ 80RRA. For details, reference may be made to the sections concerned of the Income Tax Act. No deduction u/s 80R/80RRA shall be allowed in respect of A.Y. 2005-06 onwards. It may also be mentioned here that as per section 9(1)(iii) income chargeable under the head ‘Salary’ payable by the Government to a citizen of India for services rendered outside India is deemed to accrue or arise in India. However, allowances or perquisites paid or allowed outside India by the Govt. to a citizen of India for rendering services abroad is exempt from taxation u/s 10(7).

6) Income Tax Clearance Certificate
A resident Indian proceeding overseas for employment has to apply for an Income Tax Clearance Certificate on Form 31, as per Section 230 (I) of the Income Tax Act 1961. The Assessing Officer assessing the applicant’s form would provide Form 32 which authorises the application.. An expatriate before leaving the territory of India is required to obtain a tax clearance certificate from a competent authority stating that he does not have any outstanding tax liability. Such a certificate is necessary in case the continuous presence in India exceeds 120 days. An application is to be made in a prescribed form to the Income Tax Authority having jurisdiction for assessment of the expatriate to grant a tax clearance certificate. This is to be exchanged for final tax clearance certificate from the foreign section of the Income Tax Department. Tax Clearance certificate is valid for a period of 1 month from the date of issue and is necessary to get a confirmed booking from an airline or travel agency and may be required to be produced before the customs authorities at the airport
The following categories of persons are required to produce a tax clearance certificate from the concerned assessing officer prior to their departure:-
•persons who are not domiciled in India, and in whose case the stay in India has exceeded 120 days;
•persons of Indian or non-Indian domicile whose names have been communicated to the airlines/shipping Companies by the Income Tax authorities;
•persons who are domiciled in India at the time of their departure; but
i.intend to leave India as emigrants; or
ii.intend to proceed to another country on a work permit with the object of taking any employment or other occupation in that country; or
iii.in respect of whom circumstances exist, which in the opinion of the income tax authorities render it necessary for him to obtain the Tax Clearance Certificate.
7) Foreigners working in India can get one-time tax clearance: There are many foreign employees not domiciled in India. To save them the hassles of obtaining a tax clearance each and every time such employees travel abroad, there is a provision where they can get a onetime clearance certificate that covers a period of up-to five years. This type of one-time clearance is given in those cases where their employers give a guarantee in the prescribed form that if any tax is found due against the employee during the entire period of the contract of service plus two years the same shall be paid by the employer. Such a guarantee may also cover the tax liabilities of the spouse and dependents of the foreign employee.

8) Tax Exemption Certificate - Lower or Nil Rate of TDS:

The rate prescribed for TDS from NRI's income is the maximum rate of tax at which relevant Income is taxable in India. However, in majority of the cases of NRI, the actual tax liability is lower than this. However, the higher deduction of tax so made is generally not claimed as refund by filing Income Tax Returns In order to assist such a situation, the Income-tax Act has provided procedure under section 197 whereby a NRI can apply to the Assessing officer (in prescribed form) to issue specific certificate authorising the payer of income (who normally deducts tax at highest prescribed rate) to deduct tax at a lower rate or nil rate as the case may be. The NRI should estimate his income, tax liability and likely TDS and then apply for partial or complete Tax Exemption Certificate. The payer shall deduct tax in accordance with the certificate of the Assessing officer. Such a certificate would be binding on the payer.

Any NRI who has obtained Exemption Certificate needs to submit it to the Payer of the income who will follow the certificate and not deduct tax or may deduct at a lower rate as given.