Updated on:
The world has become smaller, due to seamless connectivity and increased mobility of people. Businesses are spread across territories resulting in increased cross-border movement of employees. The world economic scenario is also changing with developing nations nudging their way into prominence as businesses all around the world see massive growth potential in these countries.
India is one such coveted destination for businesses and now with the Indian government’s ‘Make in India’ initiative, it would not be surprising to see an increasing influx of foreign nationals with specialised skills coming to work in India.
While the employer company usually takes care of the legal requirements, it is equally important for such individuals to be cognisant of the Indian regulations, which can impact them.
Some useful aspects are highlighted in this article.
Before commencing work in India, the first step is to take care that you have obtained the correct visa both for yourself as well as accompanying family members.
For working in India, as a foreign national, you should apply for an employment visa (EV). The hiring company should ideally guide you on the application process, requisite documents and stipulated conditions for obtaining such visa. The validity of your employment contract governs the duration and renewal of your EV. However, if you hold an Overseas Citizen of India card, you need not obtain any visa and can directly come to India and start employment.
Your family members accompanying you need to individually apply for an ‘X’ or ‘dependent’ visa. Their visa is co-terminus with your EV and hence cannot be renewed or obtained independently (except under certain circumstances). Please also take care to note the expiry date of your EV so that you can apply for renewal before its expiry. It is extremely important that you and your family members hold a valid visa as long as you are in India to avoid the risk of being deported.
After your arrival in India, there are certain registrations, which are required both under the immigration and tax laws. From an immigration perspective, you and your family members are required to get registered with the Foreigner Regional Registration Office (FRRO) within first 14 days of arrival in India in order to be granted a Residential Permit (RP) which is the official document which permits you all to reside in India. This is applicable for all foreign nationals who enter India with an EV valid for more than 180 days or who intend to stay in India for more than 180 days.
Similarly, this process applies to your family members as well who come to India on dependant visas. If there is a timing difference between your arrival and their individual arrivals, they must undergo this process individually within the time limit stamped on their passports. While the process has become largely online nowadays, the FRRO may require the individual to physically visit the FRRO officials before the RP is granted. Please note that this can be a time-taking exercise and usually cannot be done by a representative, hence it is wise to set aside some time in your diaries for this important process. This process needs to be repeated on an annual basis when your visa is renewed. If you fail to register within the given timeline, you will not be permitted to leave India. The next important step is to apply for a tax registration id called Permanent Account Number (PAN) in India. This is a unique registration number which is used for your tax compliances in India. Your employer will also need this number for paying your salary and carrying out the requisite payroll compliances. PAN will also be required for the purpose of opening a bank account in India.
Very recently, the Indian government has given the option to use Aadhaar number instead of PAN for all income tax purposes. Aadhaar is a unique identification number allotted by the Indian Government to individuals. Indian citizens can obtain such number at any time based on furnishing requisite documents. However, foreign nationals need to be in India for at least 180 days before they can apply for Aadhaar. There is a separate procedure laid down for the purpose.
The Indian tax year runs from April 01 to March 31 of the subsequent year.
Taxability in India depends upon your residential status which is determined for each tax year based on your physical presence in India during such year and the preceding 10 tax years. For income tax purposes, an individual is categorised as Non-Resident (NR), Resident but Not Ordinarily Resident (RNOR) or Resident (for the sake of clarity, also referred to as Resident and Ordinarily Resident (ROR)). If you qualify as NR or RNOR, you are liable to tax in India on your India sourced income only, which includes both income earned in India as well as income received in India.
However, if you qualify as ROR, your worldwide income is subject to tax in India. In case of any double taxation in India and in any other country, you can avail of relief from double taxation under the applicable tax treaty between India and such country, or under the Indian domestic tax law (as the case may be).
Do note that salary income earned by you for the period of services rendered in India is taxable in India irrespective of your residential status and the place of payment of such salary. Thumb rule is - you work in India, you pay tax in India. While the employer company is required to deduct taxes on a monthly basis from your salary income and deposit with the tax department, ultimately it is your responsibility in case the employer fails to do so.
Hence, it is a good idea to be clear about these aspects before you start working in India. if there is any shortfall in the tax deducted, you need to pay the differential tax before filing your tax return for the year in India. For the tax withheld and deposited on your behalf, your employer will issue you an annual tax-withholding certificate (Form 16 and 12BA) mentioning details of your salary, benefits and taxes deposited thereon. You should carefully review such Form 16 and in case of any discrepancies, contact your employer immediately for an appropriate rectification.
After the tax year ends on March 31, you need to file your return of income before July 31. For filing your return of income and also checking details of tax withheld and deposited on your salary income, you need to open an online income tax account on the web portal of the tax department. There are different tax return forms applicable for different levels of income and on other factors like residency, classification of income, etc. It is advisable to seek the help of a tax professional who can guide you on the correct form to use. There are financial and other consequences of filing an inaccurate return.
It is also advisable to review all your financial transactions during the year before filing the return and keep appropriate documents or proofs for any exemptions or deductions claimed. In addition to paying the correct tax due, there are additional reporting disclosure requirements with respect to assets and liabilities, directorships, travel details etc. which could apply in your case. The Indian government notifies the return form for each tax year sometime in April after the year ends and one should carefully read the instructions issued in this regard to ensure that the disclosures are not missed.
After the stipulated assignment period, when it is time for you to finally make a departure from India, you are required to apply for or obtain a No Objection Certificate from income tax department. You also need to surrender your RP that you obtained from FRRO. This can be done either after returning to your home country or surrendering at the immigration authorities at the airport.
In the years subsequent to your departure from India, it is possible that the tax authorities may issue further queries with respect to the tax returns filed so far or may decide to carry out a tax audit of your file. Please do watch out for such email notifications and ensure that they are responded to. These assessment proceedings can now be done online and can be easily taken care of if your tax filing is properly maintained. In light of this, it is a good idea to have a discussion before your departure from India with a tax expert in India who can guide you on how to take care of these situations.
The author is Partner, Personal Tax, PwC India
(With inputs from Manavi Gupta, Associate Director, Personal Tax, PwC India)