Taxation of Expatriate Employees, Calculation & Tax Forms

Taxation of Expatriate Employees in India

Most of us have always been confused and even disoriented by the idea of taxes. The majority of us likewise find taxes to be frightening and extremely stressful, particularly when it comes to overseas money. Particularly for those who work with multinational corporations, there is one particularly intricate aspect of taxation that needs to be understood: the taxation of foreign nationals.

Who qualifies as a Tax Resident in India?

Spending at least 182 days in India in a year
Spending of 60 days in India in single year, as well as at least 365 days over the previous four years.

If these conditions are not met, one will be considered a non-resident for tax reasons. If someone satisfies the conditions to become a resident, they will be a ROR or an RNOR. (See above section for more information.) The individual will be considered as an RNOR and taxed as a non-resident if any of the following are true:

if that one was a non-resident, for at least nine of the ten previous tax years. One has been in India for less than 730 days in the last seven years. If not, they will be considered a ROR and their international income will be subject to taxes.

Arriving at the Calculation of Taxation for Expatriates

Tax Rates: The income rates applicable to expatriates is as follows:-

S.No	Taxable Income	Income Tax Rates
1	Up to Rs. 2,50,000	Nil
2	Rs. 2,50,000 – Rs, 5,00,000	5%
3	Rs. 5,00.000 – Rs. 10,00,000	20%
4	Rs. 10,00,000 and above	30%

Residential Status: The Income Tax Act and the DTAA are the two perspectives that must be taken into consideration while determining an expat's residential status. In some cases, the foreign national may be considered a resident of both nations based on the applicable tax rules. The "Tie Breaker Rule" is the result of this. The following are the variables to be taken into account for this:

S.No	Factors	Description
1	(i) Permanent home	The country in which he/she has a permanent home available to him/her
2	(ii) Centre of vital interest	The country with which his/her personal and economic relations are closer
3	(iii) Habitual abode	The country in which he/she has a habitual abode
4	(iv) Nationality	Country of which he/ she is a national
5	(v) Competent authorities	As determined by mutual agreement between both the countries competent authorities

The fundamental guideline for taxing salary income states that wages are subject to taxation in the nation in which an employee performs services while physically present.

Deemed Tax Residents:

If a citizen of India is not required to pay taxes in any other nation or territory, he will be considered to have resided in India for the preceding year.

Scope of Income:

S.No	Resident	Not Ordinarily Resident	Non Resident
1	All income earned globally	Income received in India	Income received in India
2	Income sourced from India	Income sourced from India
3	Income from a business that is controlled from India

Provident Fund and SSA:

Both the employer and the employee are required to contribute 12% of their monthly wage (as specified in the EPF and MP Act) under the terms of the PF program. 8.33% of monthly pay will go toward the pension fund and the remaining 3.67% will go toward the provident fund out of the employer's contribution.For FY 2020–21, the interest rate that applies to EPF contributions is 8.5%.The entire salary, whether earned in India or overseas, will be included in the salary.

If an overseas worker possesses a Certificate of Coverage from his home country and is from a nation with which India has signed a Social Security Agreement (SSA), he is exempt from paying into the Indian social security system as long as he provides the PF with the COC authorities.

S.No	Basis	PF Withdrawal	Pension Withdrawal
1	Where an SSA exists	As per the SSA provisions	As per the SSA provisions
2	No SSA exists	· On retirement from services after attaining an age of 58 years· On retirement on account of permanent incapacitation specified by a medical practitioner	· After the attainment of 58 years of age subject to the satisfaction of the necessary conditions

Per Diem Allowance/Daily Allowance:

Employees receive a daily allowance in addition to their compensation to help cover the cost of living adjustments they must make when taking on assignments abroad. According to the Income Tax Regulations, any regular daily allowance provided while on tour is deductible as long as it is used to cover necessities..

Employees Stock Option Plan (ESOP):

In terms of ESOP, shares that are issued under it are taxable in the employees' names at the moment of exercise.

The entire topic of expat taxation is interesting and has undergone several changes, particularly in the last few years. Considerable endeavors have been undertaken to furnish additional lucidity concerning the tax liability of said individuals and other non-domestic residents.

Essential Tax Forms for US Expats in India ?

Form 1040 - No matter where they reside, all US citizens and residents are required to submit Form 1040, which is the primary tax form, each year. You must use Form 1040 to file a US tax return as an expat American living in India.
Form 2555 - The Foreign Earned Income Exclusion (FEIE), which enables you to deduct a specific amount of foreign-earned income from your US taxable income, is claimed using Form 2555. You must fulfill specific residency and physical presence requirements in order to be eligible for the FEIE.
Form 1116 - This form is used to claim the Foreign Tax Credit (FTC), which lets you deduct taxes paid to India from your US tax obligation. The FTC is particularly valuable if you are subject to higher tax rates in India than in the US.
FBAR - If the total amount of all overseas financial accounts exceeds $10,000 at any point during the calendar year, foreign bank accounts must be reported using the overseas Bank Account Report (FBAR).
FATCA - If the value of any foreign financial asset reaches a predetermined level, US citizens and residents are required by the Foreign Account Tax Compliance Act (FATCA) to report the asset on Form 8938.

Registration of Form C in Regional Registration Office (FRRO)

Form C is used to inform authorities about the arrival and stay of foreign visitors. This helps ensure the safety & security of foreigners in India by making it easier to track their location in the country. Form C serves as a supporting document and initial prerequisite for the registration process with the Foreigners Regional Registration Office (FRRO). For foreign visitors who want to stay in India for more than 180 days, FRRO registration is required.

Within 14 days of their arrival, foreign nationals holding long-term visas—such as those for work, projects, or education—must register with the FRRO. Similarly, if a business visa holder spends more than 180 days in India during the course of a calendar year, they must register with FRRO. The FRRO registration certificate for expatriates also serves as proof of address & identity, which is required for various official tasks like applying for a PAN, opening a bank account, and getting a mobile connection.

Application Process of Form C

Form C submissions are made exclusively online. All owners of hotels, guest houses, hostels, and private homes must register and submit Form C by following the guidelines listed below:

Go to https://indianfrro.gov.in/frro/FormC to access the FRRO portal.
Upload the required files to create a new user account.
Choose 'Form C' to begin entering data regarding the foreign visitors who are being hosted after the account has been activated.
Enter the foreign national's information carefully, making sure to include a photo, passport details, and visa information.
Provide complete facts on Form C, including the foreign national's permanent address, travel history, precise arrival time and date in India, lodging details, reason for visit, and contact details.

During a foreign visitor's stay, Form C is often submitted twice: once upon check-in and once upon check-out. Although there isn't a specified time limit for Form C submission upon check-out, it's usually a good idea to finish this procedure within a day of the guest's departure. This guarantees continued adherence to the rules and regulations.

How can SKMC Global can assist you ?

As a service provider, we're here to help foreign nationals manage their tax responsibilities and make sure they follow the rules in both their new home country & their original country. Dealing with foreign taxes can be tricky for expatriates, as they have to understand different systems. Our main duties as service providers when it comes to foreign currency taxes are:

Tax Planning and Strategy:

Our knowledgeable staff helps expats understand how to legally reduce their tax obligations by providing tax planning assistance. This entails planning around things like tax treaties, credits for taxes paid overseas, and exclusions on foreign income.

Tax Compliance:

We support foreign nationals in making sure they are in conformity with the tax regulations in both their home and new countries. This entails completing and filing tax returns, disclosing foreign income, and making sure that all required paperwork—like the U.S. Form FBAR—is finished and turned in on time.

Navigating Double Taxation:

Both the host nation and the country of origin may impose taxes on expatriates. In order to lessen or completely eradicate double taxation, we thus employ tax treaties, international tax credits, and exclusions to assist in navigating double taxation concerns. Additionally, we support foreign nationals in their eligibility for and use of the dwelling exclusion (DEDUCT) and the Foreign Earned Income Exclusion (FEIE), which can dramatically lower their taxable income while they live and work overseas.

Understanding Tax Treaties:

We construe and implement the terms of international tax treaties. They make sure that treaty benefits, such lower withholding rates or exemptions from paying certain taxes, are fully utilized by expatriates.

Foreign Bank Account Reporting (FBAR) and FATCA Compliance:

As a service provider we help U.S. expats comply with the Foreign Account Tax Compliance Act (FATCA) and the Foreign Bank Account Report (FBAR). As a service provider, we assist foreign nationals with reporting their assets and bank accounts as mandated by law. To assist in handling these complications and guarantee that estate and gift taxes are reduced and appropriately recorded, we also provide estate planning services.

Social Security and Payroll Taxes:

We help expats understand their payroll tax and social security duties, which can vary depending on whether they work for a foreign company or stay with a local business. SKMC experts also manage issues related to totalization agreements that prevent paying social security taxes twice.

Representation with Tax Authorities:

In interactions with tax authorities, we represent foreign nationals. This include answering inquiries, managing audits, and pleading with tax officials on the foreign national's behalf. To find out how much the expat would have paid if they had stayed in their home nation, we also compute hypothetical taxes.

Currency Conversion and Reporting:

As a provider of expat tax services, we help with currency conversion-related problems for tax reporting purposes, making sure that income, expenses, and tax payments are reported appropriately in accordance with the exchange rates mandated by regulators.