Essential tax strategies for expatriates living in India
What's the story
Deciphering India's income tax rules might seem like a maze for expatriates, but it doesn't have to be!
Whether you're wondering how your residency status affects taxation or which deductions you can claim, we've got you covered.
This guide simplifies the legal jargon into clear, actionable insights, helping you manage your finances smarter. From first-time expats to seasoned professionals, navigating the Indian tax system just became stress-free.
Let's break down the essentials together—no more confusion, just clarity!
Residency
Determining tax residency status
For expatriates, navigating tax obligations begins with establishing residency status under the Income Tax Act.
You're considered a resident if you exceed 182 days in India during the financial year or have a stay of 365 days or more in the past four years and more than 60 days in the current year.
This classification has a major impact on your tax liability.
Income scope
Taxable income for expatriates
For residents, India taxes global income, i.e., income earned both in India and abroad is taxable.
In contrast, nonresidents are taxed only on income that is received or deemed to be received in India or accrues or arises, or is deemed to accrue or arise, in India.
Knowing this difference is key for expatriates in managing their finances and filing taxes.
Savings
Deductions and exemptions available
Expatriates can claim various deductions under Section 80C to Section 80U of the Income Tax Act.
This includes investments made toward provident funds, life insurance premiums, and tuition fees for children's education, among others.
Plus, certain allowances like Housing Rent Allowance and Leave Travel Allowance are exempt from tax up to specific limits under certain conditions.
Special cases
Special provisions relating to expats
The Income Tax Act contains specific provisions applicable to expatriates working in India, including relief under Double Taxation Avoidance Agreements (DTAA), where applicable.
For example, if an expat pays tax on their income earned outside India but also gets taxed on the same income in another country where they are temporarily residing, they can claim relief from double taxation based on the DTAA between India and that country.
Compliance
Reporting requirements and compliance
Expats need to be mindful of all reporting obligations, including filing annual returns by July 31 each year, unless authorities extend the deadline.
And, they should report not just salary but other incomes like interest from savings accounts abroad if it exceeds ₹5 million during a financial year. This is crucial as it may affect their residency status and, therefore, the scope of their taxable income.