We discuss some of the important tax, HR, and payroll considerations for expatriates when relocating to India for work or other purposes. Key points of information include types of jobs open to expats living in India, local living conditions and related concerns, applying for an Employment Visa, the taxation regime and reporting requirements, and access to social security. This article will hold value for foreign hiring managers as well.
Expat jobs in India
India is an increasingly favored destination for expatriates who want to work in emerging markets. Over the past decade, India’s rapidly growing infrastructure, industry, and services sectors have opened to greater foreign investments and the country now has major hubs for multinational corporations.
This has created numerous employment opportunities for expatriates working in skilled and specialized roles in the country. Some of the industries that attract large numbers of foreign professionals include IT/ITeS, engineering, infrastructure, manufacturing, petroleum, steel, banking, textiles, and tourism. Besides senior executive roles in foreign subsidiaries, popular positions among expatriates cater to marketing, sales, and consultancy work. Experience and high skill levels in niche areas offer greater chances of employment for foreign nationals as India’s labor market is very competitive and grows narrower at the top, that is, jobs catering to specialized functions.
Increased foreign funding due to liberalized investment rules, transition towards high-tech services, growth of new manufacturing segments and unicorn start-ups, and the launch of mega infrastructure projects are some of the factors contributing to the hiring of more foreign expertise in India.
Correspondingly, India’s living and working environments have also adapted to global cultural standards, particularly in metropolitan / tier-1 and tier-2 cities where industrial and software parks, corporate centers, and special economic zones (SEZs) have created conditions conducive to jobs with an international profile. (The tier-wise segmentation of India’s cities is done on the basis of population and not levels of development.)
Indian regulations for expatriates working in India
Labor laws in India are applicable to all establishments incorporated or doing business in the country, irrespective of the nationality of staff employed. However, the framework of labor legislation is only applicable to establishments, employers, and employees within India.
See Labor Laws in India – A Guide to Federal, State, and Industry Specific Regulations for more information.
Work culture and business etiquette
In India, the workplace set up is often hierarchical with clear boundaries between management levels. The country’s business etiquette is a combination of Western and Eastern practices, but local customs do permeate relationships. These need to be acknowledged for successful business interactions. Appealing to a person’s honor and being respectful of each other’s roles and expertise is also important when beginning a discussion or conducting business with an Indian colleague or associate.
See Traveling in India – Business Etiquette and Culture for more information.
Expat salaries in India
The high minimum salary threshold set by the Indian government at over US$25,000 (salary and allowances) per annum for foreigners seeking an employment visa in India effectively ensures their small population to high-ranking and specialized positions. However, this minimum wage rule does not apply to foreigners employed in specific roles, such as language teachers and translators, ethnic cooks, embassy staff, and academics in central higher education institutions.
Applying for an India work visa
Skilled and qualified foreign nationals who are interested to work for a company in India should apply for an Employment Visa (‘E’ Visa), if it matches any of the purposes or job description below:
- Involved in execution of projects or contracts.
- Foreign nationals coming to India as consultants on fixed remuneration.
- Provision of technical support services or transfer of know-how for which an Indian Company pays fees or royalties.
- Foreign engineers and technicians coming to India for installation and commissioning of equipment, machines, or tools as part of a contract for supply of such equipment, machines, and tools.
- Foreign artists or coaches employed with national or state level teams, including foreign sportsmen and foreign specialist chefs.
Further, the foreign national should also meet the following eligibility criteria for an employment visa in India:
- The applicant seeks to visit India for employment in an entity registered in India, or for employment in a foreign company engaged in a project in the country.
- The applicant is a highly skilled and qualified professional, who is being hired by a company on a contract or employment basis.
- The applicant is filling a role that the employer was unable to staff with a qualified Indian employee.
- The applicant will not be working in a routine, secretarial, or clerical job.
With the exception of language teachers, ethnic cooks employed by foreign missions, staff working for an embassy or the Indian High Commission, voluntary workers, and certain stipulated professionals, the foreign national must draw an annual gross salary in excess of US$25,000.
No change of employer shall be permitted during the period of the Employment Visa, except in cases of change of employment between a registered holding company, joint ventures and consortiums, and its subsidiaries and vice-versa or between subsidiaries of a registered holding company, joint ventures, and consortiums. Change of employment would be permitted at a senior level: a managerial or a senior executive position and/or a technical expert at a skilled position. Prior permission of the Ministry of Home Affairs is required for change of employment.
There are specific provisions relating to the grant of Employment Visa to Japanese nationals.
Documents required for employment visa processing include:
- Letter of invitation from the host Indian company
- Covering letter from the foreign company
- Contract of employment and statement of income
- Certificate of incorporation from the host Indian company
- Certificates of the applicant’s educational qualifications and professional expertise
- A valid passport that has two blank pages and a validity of six months
- Documents required by the applicant include:
- A completed visa application form
- A valid passport
- Passport sized photo
- Proof of address, such as a driver’s license or utility bill
- A detailed resume or curriculum vitae
Employers ordinarily need to provide the following documents to support visa applications:
- A permission letter that requests approval for the applicant’s visa
- A sponsorship letter that pledges responsibility for the applicant’s activity in India and promises to repatriate the applicant at company cost if any adverse conduct comes to notice
- A tax liability letter pledging responsibility for the applicant’s income tax in India
- A justification letter that confirms that the employer was unable to find a qualified Indian candidate for the job and details the applicant’s unique specialization and professional capabilities
- An appointment letter detailing the job role and salary
- A comprehensive employment contract
- Copy of the company’s PAN card
- Company’s Incorporation Certificate
Employment visa can be extended up to 10 years, if the following conditions are met:
- Applicant’s conduct during stay
- Submission of all necessary documents that justify continuation of employment
- Proper filing of income tax returns
- No adverse security inputs
Duration of employment visa for India
Employment visa for Japanese nationals
Accommodation, education, and healthcare
Best place to live in India for expats
Accommodation options are plenty across India’s metropolitan centers and surrounding suburbs – modern apartment complexes, duplexes, bungalows, residential towers, and gated residential communities. Popular destinations for work include Bangalore, New Delhi and its suburbs like Gurgaon and Noida, Hyderabad, Mumbai, among others. While rental prices in India are on the rise, they are still reasonable when compared with other destinations. Expats are advised to hire a local real estate agent to overcome language barriers, be very specific about their price range and expectations, and ensure they sign a valid lease agreement, which is needed for various security, administrative, and tax compliance processes.
Safety in India
India’s general level of safety varies. Generally, expats will not be exposed to violent crimes, but they should keep guard against instances of petty crime, pickpocketing, and small scams. Women should be cautious when traveling alone, especially at night. India does face the threat of terrorism and foreigners will find that security checks are robust in the country’s major cities, particularly at government buildings, hotels, sports venues, malls and shopping centers, transport centers, and places of worship.
Quality of education
Most expatriate families send their children to private or international schools. The curricula, learning environments, teaching philosophies, and fees in these institutions vary widely, and parents must choose a school that aligns with their budget and expectations. International school fees are among the most expensive and foreign hires should ensure that they have a sizeable allowance in the employment package to accommodate this.
Level of healthcare
Given the lack of equipment, funds, staff, and overcrowding in public hospitals, locals and expats opt for private care whenever possible. India has many privately owned and multispecialty hospitals, particularly in urban centers, which employ well-trained English-speaking doctors and nurses. All expats moving to India should ensure that they have adequate health insurance coverage.
Hiring household assistance
Most locals hire household assistants, such as cooks, domestic cleaners, housekeepers, and drivers, in India but expatriates need to consider several factors. These include finding the right source – local agencies, which may provide only native-speaking staff; domestic staff agencies; or international groups. Due to the high supply of labor in India, there will be an abundance of applicants, particularly located around the residence – here language skills, identity verification (photo, full name, residential address, mobile number, etc.), and reference checks are important considerations. Domestic workers may be part-time, full-time, and live-in. When hiring domestic staff, expats should verify their background and identity, either via the recruiting agency or intermediary; labor compliance may include registering with the local police station. Many residential areas also require the registration of domestic staff hires for security reasons. India’s domestic labor law is not well regulated, and the onus is on employers to observe labor and social welfare norms, such as contractual agreement on salary and benefits, days off and work timing, code of conduct, etc.
How are expatriates working in India taxed by the income tax department?
Expatriates working in India should know the different types of residency status in India on the basis of which their tax liabilities will be determined. Foreign nationals employed in India are taxed on their global incomes if they become an ROR (resident and ordinarily resident). A solution can be found if a double taxation agreement (DTAA) is in place between India and their home country.
India’s tax year runs from April 1 to March 31 of the next year. Foreign workers must file tax returns mandatorily; the year the income is earned is the previous year and the year reported is the assessment year. Tax returns must be filed by July 31 following the end of the financial year. A Permanent Account Number (PAN) is required to file taxes.
Levels of tax residency in India
Taxability based on residency status in India
Tax rates in India
Under India’s individual tax regime, different tax rates are assigned to respective income brackets (tax slabs), which is the income earned by a taxable person. India currently offers two individual income tax regimes. Starting from FY 2020-21 (AY 2021-22), taxpayers in the country can opt for the new tax regime – where they pay income tax at lower rates but have to forgo certain exemptions and deductions available to those taxpayers who paid taxes as per the old tax regime. Alternately, taxpayers can stick to the older tax regime and continue to avail respective exemptions and deductions.
Under the older income tax regime, the basic tax exemption limit for an individual taxpayer depends on their age and residential status. However, in the new tax regime, the basic exemption limit is INR 250,000 in a financial year.
You may refer to Calculating Income Tax for Foreign Nationals in India: A Primer and Withholding Tax in India and the 2021 Finance Act: A Brief Primer for more information.
Types of taxable income in India
Individuals are taxed on income from one or more of the below sources:
- Income from house property
- Profits and gains of a business or profession
- Capital gains
- Income from other sources
Income under each source is computed separately. The net result of all sources is aggregated to arrive at the gross total income. The taxable income is then determined by subtracting specified deductions from the gross total income. The benefits provided by employers to their employees are taxed as perquisites as per the income tax rules.
Dependent personal services
The salary of a non-resident is taxable in India if the source of salary is in India. However, under the ‘short stay exemption clause’ in several tax treaties, salaries may be taxed in resident countries rather than source countries under certain circumstances. Foreign nationals can receive their entire salary outside India if all taxes are paid on taxable income in India.
Tax Residency Certificate
The Tax Residency Certificate (TRC) is issued by the government of the country/jurisdiction that the taxpayer is a resident of. If important information required by revenue authorities are not mentioned in the TRC issued by the foreign government, then the taxpayer must furnish the requisite details in Form 10F.
The Tax Residency Certificate includes the following information:
- Status (individual, firm, company, etc.)
- Nationality (in case of individual)
- Country or territory of incorporation/registration (in case of others)
- TIN number (Tax Identification Number) in the resident country (in case of no TIN, it must include a unique identification number assigned by the government)
- Residential status for tax purposes
- Validity period of the certificate
- Address applicable during the validity period
List of incomes that can avail tax benefits with the TRC:
- Services provided in the non-resident country
- Salary received in the non-resident country
- Assets in the non-resident country
- Capital gains on the transfer of assets to the non-resident country
- Fixed deposit in the non-resident country
- Saving bank account in the non-resident country
With a TRC, you can claim tax relief in any one of the two countries.
The India tax resident assessee will need to fill and submit Form No. 10FA to the Assessing Officer. The officer will issue a certificate of residence (Form No. 10FB) if all requirements are satisfied.
Foreign tax credit rules
Under the foreign tax credit (FTC) rules, certain documents are required to claim FTC when filing tax returns in India:
- Statement of income from the country/jurisdiction or specified territory outside India offered for tax for the previous year and information on the foreign tax deducted or paid on such income in the Form No. 67. This Form must be submitted to Indian tax authorities prior to filing the India tax return for the particular financial year.
- Certificate or statement specifying the nature of income and tax amount deducted on it or paid by the assesse.
- Statement from the tax authority of the country/jurisdiction or specified territory outside India from the person responsible for deduction of such tax or signed by the assesse. The statement furnished by the assesse is valid if it is accompanied by an acknowledgement of online payment or bank counterfoil or receipt for payment of tax where the payment has been made by the assesse and proof of deduction where the tax has been deducted at source.
India has concluded various Social Security Agreements (SSAs) to ease the social security obligations on cross-border / international workers. Under these SSAs, incentives such as detachment, exportability of pension, totalization of benefits, and withdrawal of social security benefits are available.
India has entered into SSAs with the following countries/territories: Australia, Austria, Belgium, Brazil, Canada, Czech Republic, Denmark, Finland, France, Germany, Hungary, Japan, Luxembourg, Netherlands, Norway, Portugal, Quebec, South Korea, Sweden, and Switzerland.
India’s social security system provides pension and retirement benefits to workers in factories and ‘covered establishments’ – defined as establishments employing 20 or more employees. The system is governed by the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (PF Act).
In 2008, the PF Act was amended to include a new category of employees called International Workers (‘IWs’) defined as follows:
- An Indian employee who worked or is going to work in a foreign country with which India has entered into a social security agreement (SSA) and is eligible to avail the benefits under the social security program of that country.
- An employee other than an Indian employee, holding other than an Indian Passport, and working for an Indian establishment.
The Employees Provident Fund Scheme, 1952 and Employees Pension Scheme, 1995 were both amended in 2008 to include ‘International Workers’, unless they qualify as an “Excluded Employee.”
IWs (other than excluded employees) have to contribute 12 percent of the salary as defined under the EPF Act towards the Provident Fund in India. Employers have to contribute 12 percent of their employees’ specified salary to this scheme. A portion of employer’s contribution, that is, 8.33 percent of the salary is mandatorily contributed into the pension scheme prior to September 1, 2014. The contribution must be deposited on a monthly basis by the 15th of the subsequent month.
Conditions where IWs are excluded from contributing towards PF in India:
- If they contribute to the social security system in their country/jurisdiction of origin and have obtained a Certificate of Coverage (COC) under the relevant SSA; or
- If they are deputed from a country/jurisdiction with which India has entered into a bilateral comprehensive economic agreement before October 1, 2008; or
- If they are a Nepalese national on account of the Treaty of Peace and Friendship of 1950 or a Bhutanese national on account of the India-Bhutan Friendship Treaty of 2007 – upon either case being deemed as equivalent to Indian workers.
Amendments in the Employees’ Pension Scheme, 1995:
- From August 22, 2014, an employee joining and becoming the member of the provident fund (PF) for the first time on or after September 1, 2014 and has a salary exceeding INR 15,000 at the time of joining the fund is not eligible to become a member of the Employees’ Pension Scheme, 1995. Therefore, the employer’s entire PF contribution of 12 percent will be contributed towards Provident Fund account and there will be no diversion of employer’s share to the Pension Fund.
- Thus, all IWs who become members of the PF for the first time on or after September 1, 2014 and earn a salary exceeding INR 15,000 at the time of joining the fund are not eligible to become members of the Employees’ Pension Scheme, 1995.
Amendments in the Employees’ Deposit Linked Insurance Scheme, 1976:
- From August 22, 2014, the wage ceiling has been enhanced from INR 6,500 to INR 15,000.
- The contribution towards the EDLI scheme and its administrative charges will be subject to a salary cap of INR 15,000 in case of IWs.
- The contribution must be deposited on a monthly basis by the 15th of the subsequent month.
Withdrawal of contributions to social security schemes
IWs can claim their social security savings upon termination of employment or reaching retirement age in India. To determine eligibility, employees from countries/jurisdictions with whom India has an SSA need to examine the agreement’s conditions; similarly, employees from countries/jurisdictions with whom there is no SSA with India need to assess their entitlement to social security contributions. For those covered by an SSA, the “Totalization of period” clause in the agreement would allow the period of coverage in India and the period of coverage in the other country’s/jurisdiction’s social security scheme to be aggregated in order to determine eligibility for pension benefits.
The specific conditions to withdraw these contributions are briefly noted below.
For provident fund contributions: IWs who benefit from an operational SSA between India and any other country/jurisdiction can withdraw their accumulated PF balance when they are no longer an employee in the establishment (as covered under the PF Act). In case of non-coverage under SSA, IWs may withdraw their PF balance upon retirement from service in the establishment – at any time after 58 years or if they face certain contingency situations (death/specified illnesses/incapacitation).
For pension withdrawal: The lump sum refund is available only to those IWs who are covered under an SSA in effect and have not completed the eligible 10 years of service even after including the totalization of service (as calculated under the respective SSA). IWs not covered under an SSA will not get the lump sum refund. Further, employees who have joined or become members of the EPFS on or after September 1, 2014 and earn monthly salary (as defined in the EPF Act) in excess of INR 15,000 will not be required to contribute towards the EPS/pension scheme and thus, there is no pension accumulated.
For monthly pensions: IWs (regardless of whether they are covered under an SSA or not) having completed 10 years or more of contributory service, are qualified to receive a monthly pension. The employees are also entitled to receive a monthly pension in cases where a) they have completed the eligible 10 years of service or more and retire on attaining the age of 58 years; or b) early pension, if they have completed the eligible service of 10 years or more and have retired or otherwise ceased to be in the employment before 58 years of age. Again, it must be noted that employees who have joined or become members of the EPFS on or after September 1, 2014 and earn monthly salary (as defined in the EPF Act) in excess of INR 15,000 do not have to contribute towards the EPS/pension scheme and thus, there is no pension accumulated.
Comparing fund benefits for SSA and non-SSA countries
For more information on recruiting in India and managing your payroll compliance obligations, please contact our experts at [email protected]. This article is excerpted from our latest publication, Human Resources and Payroll in India 2022, which can be accessed here.
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