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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.
The
first INR150,000 of income is free of
tax; between that level and INR300,000
the rate is 10%; then 20% up to INR500,000;
then 30% on income above that level. A
10% surcharge is due on income over INR1m,
and the total tax charge is subject to
a further 3% education 'cess', taking
the top marginal rate to 33.99%.
Some
types of employee benefit are exempt from
tax, including medical expenses and rent
allowances.
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.
Dividends
from Indian companies are normally exempt
from taxation in the hands of an individual
recipient, but are subject to Dividend
Distribution Tax at 16.995%.
There
is a wealth tax, charged annually at 1.03%
of assets held in India in excess of INR1.5m.
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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