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Expatriate
Executive:
India
Summary
of local taxation situation
A
foreign national working in India or based
there will be taxed in India as resident,
non-resident, or not ordinarily resident.
Residence
applies to individuals who:
- spend
more than 182 days in the country in
the tax year; or
-
spend more than 60 days in India during
a tax year plus more than 365 days in
the country in the previous four tax
years.
Other
individuals are non-resident.
A
not ordinarily resident person is one
who has been non-resident in nine out
of the previous ten years and has not
spent more than 729 days in the country
during the previous seven tax years.
To
lose tax residence it is simply necessary
to stop fulfilling any of the above criteria
in a given tax year.
Resident
individuals are taxed on their worldwide
income; non-resident and not ordinarily
resident individuals are taxed only on
their local-source
income.
In 2010, the first INR160,000 of income is free of tax; between
that level and INR500,000 the rate is 10%; then 20% up to INR800,000;
then 30% on income above that level. A 10% surcharge was due on
income over INR1m until was removed from 2009/10. However, income
is subject to a further 3% education 'cess'.
If
a foreigner works in India for a foreign
company for less than 90 days in a tax
year, the income is generally exempt from
tax.
Capital gains from most types of listed securities are taxed at
15% (short-term gains); longer-term gains are exempt. Short-term
gains on other types of securities are taxed as regular income;
longer-term gains are taxed at 20%, and the same rate applies to
capital gains on other types of asset. An amended Direct Tax Code
presented in June 2010 proposes reforms to the capital gains tax
system so that the distinction between short- and long-term gains
is largely removed. This would bring some previously exempted transactions
into the tax net.
Dividends from Indian companies are normally exempt from taxation
in the hands of an individual recipient, but are subject to Dividend
Distribution Tax at 15%, plus a 3% education surcharge. An additional
7.5% surcharge is due if total tax due is more than INR10m.
There is a wealth tax, charged annually at 1% of assets held in
India in excess of INR3m. There is no alternative minimum tax and
no inheritance tax.
Expatriates
used to be exempt from paying social security
contributions in India, but as of November,
2008, both they and their employers must
pay 12%.
NB:
The Indian tax rules are considerably
more complicated than the above simplified
summary, and professional advice on the
situation of any particular individual
is a necessity.
Offshore
Investment Opportunities
Although
some
revenue protection measures apply to countries
having "preferential" tax regimes,
these apply mostly to the corporate sector,
and general anti-avoidance legislation
has not progressed far in India for individuals;
offshore trusts or other corporate forms
are therefore generally speaking quite
effective at sheltering many types of
asset.
It
follows that before taking on Indian residence,
there is a case for placing income- or
growth-generating assets into trust.
Needless
to say, it is essential to take professional
advice.
Once
Indian residence has been terminated,
and if non-residence is expected to be
permanent, then an ex-Indian resident
is free to invest offshore in order to
obtain the best possible returns.
www.lowtax.net
contains extensive information on the
investment, tax and legal regimes in 50
of the main offshore jurisdictions. Further
information is available in our Investment
Information Providers Section, and
the four main types of offshore investment
are described in the Guide
to Offshore Investment on this site.
NB: The suggestions given above do not
constitute investment advice. They are intended
only to assist individuals in finding appropriate
professional advice, which is essential
for anyone planning offshore investment.
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