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India - Income Tax

India - Income Tax

Taxation of international executives

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Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

An individual’s tax return must be filed by 31 July immediately following the end of the tax year. An individual, whose total income includes business income and where the accounts are required to be audited, has to file the return by 31 October following the tax year.
There is no concept of extended return in India. However, belated return (i.e. after due date) can be filed. From Tax Year (TY) 2016-17 onwards, belated tax return can be filed at any time before1 year from the end of TY or before the completion of assessment (audit of India tax return), whichever is earlier.

Where a taxpayer files a return after the due date, interest is levied at 1 percent per month (or part thereof) for each month of delay on the balance tax payable. Further, where a person fails to file India Tax Return within the time prescribed, late filing fees shall be charged as follow:

  • INR5,000, if the return is furnished on or before 31 December of the assessment year*
  • INR10,000 in any other case*

*Further, if the total income of the person does not exceed INR500,000, the fee payable for late filing of India Tax Return shall not exceed INR1,000.

What is the tax year end?

The TY begins on 1 April and ends on 31 March of the immediate following year. The income earned during a year is taxable in the relevant year. The year in which income is earned is known as the previous year or tax year or financial year. From a tax perspective, the 12-month period subsequent to the tax year is known as the assessment year.

What are the compliance requirements for tax returns in India?

An individual is required to obtain a registration with the tax authorities [i.e. a Permanent Account Number (PAN)]. PAN is a unique ten-digit identification number given by the Indian tax authorities. PAN is required to be quoted on all the correspondence with the tax authorities.

As per the domestic tax law in India, every individual is required to file India tax return for the respective financial year with the Indian-tax authorities by 31 July following the financial year end if:

  • Their income chargeable to tax in India, without giving effect to exemption claimed upon sale of a Capital Asset, exceeds basic exemption limit (i.e. INR250,000); or
  • Expenditure has been incurred by the taxpayer of an amount or aggregate of the amounts exceeding INR200,000 for self or any other person for travel to a foreign country/jurisdiction; or
  • Expenditure has been incurred by the taxpayer of an amount or aggregate of the amounts exceeding INR100,000 towards consumption of electricity; or
  • They qualify as Ordinary Resident of India and 
    • holds, as a beneficial owner or otherwise, any asset (including any financial interest in any entity) located outside India; or
    • has signing authority in any account located outside India; or
    • is a beneficiary of any asset (including any financial interest in any entity) located outside India?

Further, for an individual of age 80 years or older at any time during the previous year, and who furnishes the India tax return in ITR 1 or ITR 4, it is not mandatory for the individual to e-file the return of income i.e. a paper return can be filed. For all other cases, e-filing of India tax return is mandatory.

It may further be noted that obtaining and quoting Aadhaar is mandatory for an individual. However, the said requirement shall not apply to an individual who does not possess the Aadhaar or the Enrolment ID and is:

  • Residing in the States of Assam, Jammu and Kashmir and Meghalaya.
  • A non-resident as per the Act.
  • Of the age of 80 years or older at any time during the previous year.
  • Not a citizen of India.

Tax is required to be withheld at source on salaries, professional fees, rent, interest, dividends, etc. at the time such income is credited to the account of the payee or at the time of payment, whichever is earlier. In case the amount of tax withheld at source is short of the actual tax liability, an individual is liable to pay advance/self - assessment tax.

Advance tax is payable by the taxpayer during the tax year if the estimated taxes (net of taxes withheld at source) exceeds INR10,000. Advance tax payable is the tax on estimated income of the tax year, reduced by tax withheld at source. Advance tax is payable in four installments by individuals as follows:

  • 15 percent is payable by 15 June of the tax year
  • 45 percent is payable by 15 September of the tax year
  • 75 percent is payable by 15 December of the tax year
  • 100 percent by 15 March of the tax year.

In case of default in filing of a tax return, interest is levied on the amount of unpaid tax at the rate of 1 percent for every month or part thereof for the period during which the default continues and is payable along with the self-assessment tax before filing of the tax return. In case of default in payment of advance tax, interest is levied on the shortfall of advance tax and the deferment of advance tax at the rate of 1 percent for every month or part thereof, during which the default occurs. Such interest is payable before filing of the tax return.
Further, a resident senior citizen (i.e. 60 years and older), not having any income from a business or profession, shall not be liable to pay advance tax.

Tax rates

What are the current income tax rates for residents and non-residents in India?

Tax rates for individuals are common for all, irrespective of their residential status. The income tax rates for assessment year 2021-22 (i.e. tax year 2020-21) are as follows:

Income tax rates for the tax year 2020-21

Normal Provisions:

      From (INR)

  To (INR)

    Basic Tax (INR)

    % on Excess

 0

250,000*

0

0%

250,001**

500,000

0

5%

500,001

1,000,000

12,500

20%

Above 1,000,000

-

112,500

30%


* 300,000 in case of a resident individual of the age of 60 years or older but under 80 years.

** 300,001 in case of a resident individual of the age of 60 years or older but under 80 years.

* 500,000 in case of a resident individual of the age of 80 years or older.

** 500,000 in case of a resident individual of the age of 80 years or older.

  • For resident individuals with taxable income of INR500,000 or below, a rebate of 100 per cent of such income tax or INR12,500, whichever is less shall be allowed.
  • Surcharge for individuals at 10 percent on total income tax, if total taxable income is between INR5,000,001 to INR10,000,000. Marginal Relief is available.
  • Surcharge for individuals is applicable at 15 percent on total income tax, if total taxable income is between INR10,000,001 to INR20,000,000. Marginal Relief is available.
  • Surcharge for individuals is applicable at 25 percent on total income tax, if total taxable income is between INR20,000,001 to INR50,000,000. Marginal Relief is available.
  • Surcharge for individuals is applicable at 37 percent on total income tax, if total taxable income exceeds INR50,000,000. Marginal Relief is available.
  • Health and Education cess is applicable at 4 percent on total income tax (inclusive of surcharge, if any).

Note: There are certain prescribed incomes which are taxable at special rate of taxes. Also, for certain incomes, surcharge is capped at 15 percent, even in case where the income exceeds INR20,000,000.

New Optional Tax Regime:**

This regime is introduced by the Finance Act, 2020 for individuals with modified tax slabs and rates. On satisfaction of certain prescribed conditions**, an individual may opt to compute tax in respect of total income (without considering prescribed exemptions/ deductions), as per the new slab rates, instead of the Normal Provisions (existing tax regime).

      From (INR)

  To (INR)

   Basic Tax (INR)

    % on Excess

0

250,000

0

0%

250,001

500,000

0

5%

500,001

750,000

12,500

10%

750,001

10,00,000

37,500

15%

10,00,001

12,50,000

75,000

20%

12,50,001

15,00,000

125,000

25%

Above 15,00,000

-

187,500

30%

  • For resident individuals with taxable income of INR500,000 or below, a rebate of 100 per cent of such income tax or INR12,500, whichever is less shall be allowed.
  • Surcharge for individuals at 10 percent on total income tax, if total taxable income is between INR5,000,001 to INR10,000,000. Marginal Relief is available.
  • Surcharge for individuals is applicable at 15 percent on total income tax, if total taxable income is between INR10,000,001 to INR20,000,000. Marginal Relief is available.
  • Surcharge for individuals is applicable at 25 percent on total income tax, if total taxable income is between INR20,000,001 to INR50,000,000. Marginal Relief is available.
  • Surcharge for individuals is applicable at 37 percent on total income tax, if total taxable income exceeds INR50,000,000. Marginal Relief is available.
  • Health and Education cess is applicable at 4 percent on total income tax (inclusive of surcharge, if any).

Note: There are certain prescribed incomes which are taxable at special rate of taxes. Also, for certain incomes, surcharge is capped at 15 percent, even in case where the income exceeds INR20,000,000.

**Conditions under the New Optional Tax Regime

The choice of the New Optional Tax Regime, albeit, comes with a few pre-requisite conditions such as:

  • Foregoing prescribed exemptions:
    • Leave travel concession [section 10(5) of the Act]
    • House rent allowance [section 10(13A) of the Act]
    • Allowances prescribed under section 10(14) of the Act, which illustratively includes Children Education Allowance, Children hostel Allowance, etc. However, the following list of allowances (being indicative) continue to be exempted, subject to conditions and notification in Rules:
      • Transport Allowance granted to specified employee to meet expenditure for the purpose of commuting between place of residence and place of duty
      • Conveyance Allowance granted to meet the expenditure on conveyance in performance of duties of an office
      • Any Allowance granted to meet the cost of travel on tour or on transfer
      • Daily Allowance to meet the ordinary daily charges incurred by an employee on account of absence from their normal place of duty
    • Allowance for income of minor [section 10(32) of the Act];
    • Exemption such as towards free food and beverage through vouchers provided to the employee (rules yet to be notified in this regard).
  • Foregoing prescribed deductions:
    • Standard deduction, deduction for entertainment allowance and employment/professional tax [section 16 of the Act]
    • Interest under section 24 of the Act in respect of self-occupied or vacant property referred to in section 23(2) of the Act
    • Loss under the head income from house property for rented house shall not be allowed to be set off under any other head and would be allowed to be carried forward as per extant law
    • Deduction from family pension [section 57(iia) of the Act]
    • Specified deductions under chapter VI-A of the Act (such as section 80C, section 80D, Section 80G, 80TTA etc.) except deduction on account of employer’s contribution toward new pension scheme [section 80CCD(2) of the Act]
  • Apart from the above-mentioned employee specific exemptions / deductions which are not available under the new Tax regime, following are other prescribed exemptions / deductions which are not available under the new Tax regime:
    • Exemptions under section 10(17) [i.e. exemption for specified members of government authorities], Section 10AA [i.e. exemption available to newly established Units in Special Economic Zones] are not available.
    • Few prescribed deductions from the income under the head business and profession shall not be available.
    • Any Deductions under chapter VI-A of the Act except for deduction under section 80CCD(2) and 80JJA shall not be available.
    • Certain prescribed set off of loss are not permissible.
  • The New Optional Tax Regime (subject to above prescribed conditions and compliances) can be exercised every year, if the individual does not have business income. In case of individual having business income, option once exercised would be applicable for all subsequent years (with a one-time option to change), except where such person ceases to have any business income.
  • An employee may, for the purpose of tax withholding on salary income, intimate the employer to withhold tax as per the Optional New Tax Regime prescribed under section 115BAC of the Act, Once opted, the employee will not be permitted to change the option during that particular financial year. The employee may, subsequently, select either of the two regimes, while preparing and filing their personal tax return, notwithstanding the choice intimated to the employer.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of India?

Tax Residential status for the tax year 2020-21 onwards shall be determined as follows:

An individual is taxed in India, based on their residential status under the Act. Residential stats as per the Act is determined, inter alia, based on the number of days of physical presence of the individual in India during the FY. Please note that part of a day, date of arrival/ departure from India are considered as full day of presence in India. The principles governing the determination of residential status are laid down in Section 6 of the Act.

As per the Act , an individual is said to be ‘Resident’ in India in any tax year if they satisfy either of the following conditions:

  • He is present in India in that fiscal year for a period of 182 days or more; or 
  • He is present in India for a period of 60 days* or more during the tax year and a total of 365 days or more during the four tax years immediately preceding the relevant tax year.

*The period of 60 days stands gets extended to 182 days / 120 days in the following cases:

  • For a citizen of India who leaves India for the purposes of employment outside India or as a member of the crew of a prescribed Indian ship, in the year of departure, the 60 days condition is replaced with 182 days;
  • For a citizen of India or a person of Indian origin who being outside India, comes on a visit to India in any tax year and their income, other than income from foreign sources, does not exceeds INR1.5 million the 60 days condition is replaced with 182 days;
  • For a citizen of India or a person of Indian origin who being outside India, comes on a visit to India in any tax year and their income, other than income from foreign sources, exceeds INR1.5 million the 60 days condition is replaced with 120 days.

If none of the above conditions are satisfied, the individual will qualify as a Non-Resident (NR) of India for that FY, unless they qualify as a Resident based on the deemed residency clause as mentioned below.

Deemed Resident

An individual, being a citizen of India, shall be deemed to be resident in India in any tax year, if they are not liable to tax in any other country/jurisdiction by reason of their domicile or residence or any other criteria of similar nature and their income, other than income from foreign sources, exceeds INR1.5 million.

A Resident individual could be Ordinarily Resident (OR) in India or Not Ordinarily Resident (NOR) in India as per the Act as explained below:

If the individual qualifies as a resident only based on the deemed residency clause or based on the reduced stay of 120 days or more as explained in the above paragraphs, and does not satisfy any other basic condition, they would qualify as a NOR.

In other cases, the individual will qualify as an Ordinarily Resident (OR), if both the following additional conditions are satisfied:

  • they have been “resident” in India in at least two out of the ten tax years immediately preceding the relevant tax year; and 
  • their stay in India during the seven preceding tax years immediately preceding the relevant tax year is 729 days or more.

If they do not satisfy either one or both the above-mentioned additional conditions, they would qualify as a NOR.

Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country/jurisdiction for more than 10 days after their assignment is over and they repatriate.
There is no de minimus number of days rule in respect of residency start/end date. The expatriate can freely move in and outside India provided they hold a valid visa.

What if the assignee enters the country/jurisdiction before their assignment begins?

In India, the residential status is determined based on the individual's total physical stay in India during the relevant tax year. Accordingly, the days spent in India prior to start of the assignment (irrespective of purpose of stay) are considered for determining the residential status of the individual in India.

Termination of residence

Are there any tax compliance requirements when leaving India?

Subject to notified exceptions, every person who is not domiciled in India; who visits India in connection with business, profession, or employment and who derives income from any source in India, is required to, prior to their departure, obtain a no objection certificate from the tax authorities about their departure in Form 30A along with other relevant documents.

Further, every person who is domiciled in India, at the time of their departure from India, shall furnish Form 30C to the income tax authorities, which shall inter-alia, include the following:

  • their PAN
  • purpose of their visit outside India
  • the estimated period of their stay outside India.

What if the assignee comes back for a trip after residency has terminated?

In India, there is no concept of termination of residency.

The residential status is determined each year based on the total physical stay of the individual in the concerned tax year. This is irrespective of the purpose of stay of the individual in India. Also, there is no concept of part/split residency in India under the domestic tax law of India.

Communication between immigration and taxation authorities

Do the immigration authorities in India provide information to the local taxation authorities regarding when a person enters or leaves India?

There is no formal system under which immigration authorities in India provide information to local taxation authorities. However, recently tax authorities have started requesting such details from the immigration authorities on a regular basis.

Further, since local taxation authorities and immigration authorities are moving towards online process, same may be integrated in due course of time.

Filing requirements

Will an assignee have a filing requirement in the host country/jurisdiction after they leave the country/jurisdiction and repatriate?

As per the domestic tax law in India, every individual is required to file India tax return for the respective financial year with the Indian-tax authorities by 31 July following the financial year end if:

  • Their income chargeable to tax in India, without giving effect to exemption claimed upon sale of a Capital Asset, exceeds basic exemption limit (i.e. INR250,000); or
  • Expenditure has been incurred by the taxpayer of an amount or aggregate of the amounts exceeding INR200,000 for self or any other person for travel to a foreign country/jurisdiction; or
  • Expenditure has been incurred by the taxpayer of an amount or aggregate of the amounts exceeding INR100,000 towards consumption of electricity; or
  • They qualify as Ordinary Resident of India and 
    • holds, as a beneficial owner or otherwise, any asset (including any financial interest in any entity) located outside India; or
    • has signing authority in any account located outside India; or
    • is a beneficiary of any asset (including any financial interest in any entity) located outside India.

Economic employer approach

Do the taxation authorities in India adopt the economic employer approach to interpreting Article 15 of the Organisation for Economic Co-operation and Development (OECD) treaty? If no, are the taxation authorities in India considering the adoption of this interpretation of economic employer in the future?

There are no defined rules in this respect. However, OECD commentary is commonly referred by tax authorities while interpreting the treaty provisions.

De minimus number of days

Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?

There is no de minimus number of days for applying the economic employer approach.

Types of taxable compensation

What categories are subject to income tax in general situations?

In general, income from employment includes all compensation, in-cash or in-kind, which is due to or received by an employee in a tax year. Taxable compensation includes the following:

  • salary, wages, bonuses, allowances, and other cash compensation income tax paid by the 
  • employer on behalf of the employee;
  • specified perquisites (such as Rent-Free Accommodation, club membership, reimbursement of utilities, etc.).

Intra-group statutory directors

Will a non-resident of India who, as part of their employment within a group company, is also appointed as a statutory director (i.e. member of the Board of Directors in a group company situated in India) trigger a personal tax liability in India, even though no separate director's fee/remuneration is paid for their duties as a board member?

The portion of the compensation which relates to services rendered in India will be taxable in India. Services rendered in India, is generally equated with physical presence in India.
Hence, compensation commensurate with the days that they actually spend in India should be taxable in India under the head “salary” subject to availability of short stay exemption under the Act / under the relevant Treaty.

a) Will the taxation be triggered irrespective of whether or not the board member is physically present at the board meetings in India?

If the individual does not come to India at all for any for the board meetings, a position can be taken that the same is not subject to tax in India, unless they qualify as an ‘Ordinarily’ resident of India.

b) Will the answer be different if the cost directly or indirectly is charged to/allocated to the company situated in India (i.e. as a general management fee where the duties rendered as a board member is included)?

As discussed above, salary commensurate with the days that they actually spend in India would be taxable in India subject to availability of short stay exemption under the Act / under the relevant Treaty. In the instant case, we understand that cross charge / recovery would be in the nature of general management fee, accordingly, the possibility of claiming the short stay exemption under the Act / under the relevant Treaty may need to be analyzed on case to case basis.

c) In the case that a tax liability is triggered, how will the taxable income be determined?

As mentioned above, compensation commensurate with the days that they actually spend in India should be taxable in India under the head “salary”. This is subject to availability of short stay exemption under the Act / under the relevant Treaty.

Tax-exempt income

Are there any areas of income that are exempt from taxation in India? If so, please provide a general definition of these areas.

Generally, subject to certain conditions and limits, the following items of compensation are not taxable:

  • House Rent Allowance
  • certain travel/tour allowances
  • reimbursement of medical expenses up to specified limits
  • medical expenses of an employee or any member of their family incurred outside India
  • leave travel concession
  • allowance granted to meet payment of rent towards accommodation tax borne by the employer on non-monetary perquisites reimbursement of telephone expenses including cost of the telephone.
  • gratuity
  • leave encashment
  • gift from employer up to specified limit
  • Superannuation Employer contribution.

It may be noted that, in case where the individual opts for New Tax Regime, the said individual is not eligible to avail prescribed exemption and deductions.

House Rent Allowance (HRA):

HRA is an allowance granted to meet the housing costs of the employee. Direct tax implications

  • A tax exemption is available to employee towards HRA, limited to least of the following1:
    • 40 per cent of salary2 (50 per cent in case the house is situated in Mumbai, Delhi, Kolkata or Chennai);
    • HRA actually received by employee; and
    • Excess of actual rent paid over 10 per cent of salary.
  • HRA exemption is not available if the employee resides3:
    • in their own house; or
    • in a house for which they do not incur any rent (this could cover instances where the house is available to an individual even without payment of rent).

HRA exemption may be availed only for the period during which the employee occupies the house during the relevant tax year.

If the taxpayer (other than those covered under audit of books of account) paying rent exceeding INR50,000 per month or part of the month to a resident, the taxpayer is required to deduct Tax Deducted at Source (TDS) at 5 percent.

It may be noted that, in case where the individual opts for New Tax Regime, the said individual is not eligible to avail HRA exemption.

Certain travel/tour allowances

Allowances granted to meet the cost of travel on tour or on transfer, including sums paid in connection with the transfer, packing, and transportation of personal effects on such transfer, are exempt to the extent to which such expenses are actually incurred.

Reimbursement of medical expenses

Reimbursement of medical expenses is generally taxable in the hands of the employee. However, in following case the reimbursement of medical expenses is not taxable, subject to prescribed condition:

  • Any expenditure actually incurred by the employee on their medical treatment or treatment of any member of their family
    • in any hospital maintained by the Government or any local authority or any other hospital approved by the Government for the purposes of medical treatment of its employees; or
    • in respect of the prescribed diseases or ailments, in any hospital approved by the Principal Chief Commissioner or Chief Commissioner having regard to the prescribed guidelines.

Medical expenses of an employee or any member of their family incurred outside India

Medical expenses of an employee or any member of their family incurred outside India is exempt to the extent permitted by Reserve Bank of India. The cost of a stay abroad of the employee or a family member and one attendant is also exempt to the extent permitted by the Reserve Bank of India.

Leave travel concession

Leave travel concession granted to the employee for themselves and their family for proceeding on leave to any place in India is exempt with respect to two journeys performed in a block of 4 calendar years, subject to fulfillment of certain conditions. The current block is calendar years 2018 to 2021.

Subject to specific conditions, one unutilized eligibility of Leave Travel concession of current block can be carried forward to first year of subsequent block.

It may be noted that, in case where the individual opts for New Tax Regime, the said individual is not eligible to avail this exemption.

Tax borne by the employer on non-monetary perquisites

Tax borne by the employer on non-monetary perquisites provided to the employee is exempt from tax provided the employer does not claim it as a deduction against its taxable income.

Telephone expenses

Telephone (including the mobile phone) expenses, paid by the employer on behalf of the employee or reimbursed by the employer based on actual expenses of the employees, is exempt from taxation.

Gratuity

Gratuity received (in accordance with Payment of Gratuity Act, 1972) by employee on retirement/termination of employment or by family on death of employee taxpayer from employer is exempted from tax subject to specified limit (presently INR2,000,000) w.e.f. 29 March 2018.

Leave encashment

Leave encashment received by employee on retirement from employer is exempted from tax subject to specified limit (presently INR300,000).

Gift from employer

Any gift received by employee from employer in kind is taxable in the hands of employee only in case where the aggregate value of gift(s) is INR5,000 or above. Gifts made in cash or convertible into money (like gift cheques) will be entirely taxable in the hands of the employees.

Superannuation Employer contribution

Employer’s contribution towards specified approved Superannuation is taxable, subject to amount of aggregate contribution exceeds INR750,000*

*Under the erstwhile provisions, the employer contribution to Provident Fund in excess of 12 percent of specified salary, employer contribution to Superannuation Fund in excess of INR150,000 and employer contribution to National Pension Scheme in excess of 10 percent of specified salary is taxable as salary. As per the amended law, from FY 2020-21 onwards, aggregate of such employer contributions exceeding INR750,000 to all these 3 funds, is taxable as perquisite. Further, annual accretion (interest, dividend or other income) to the extent it relates to the taxable employer’s contribution as above, is treated as a taxable perquisite.

Employer Provident Fund contribution

Employer’s contribution towards Provident Fund is exempt from tax subject to fulfillment of certain conditions*.

*Under the erstwhile provisions, the employer contribution to Provident Fund in excess of 12 percent of specified salary, employer contribution to Superannuation Fund in excess of INR150,000 and employer contribution to National Pension Scheme in excess of 10 percent of specified salary is taxable as salary. As per the amended law, from FY 2020-21 onwards, aggregate of such employer contributions exceeding INR750,000 to all these 3 funds, is taxable as perquisite. Further, annual accretion (interest, dividend or other income) to the extent it relates to the taxable employer’s contribution as above, is treated as a taxable perquisite.

The amount received upon withdrawal of Provident Fund would be taxable in the tax year of withdrawal at specified tax rates, However, in case prescribed conditions are met, the amount received upon withdrawal of Provident Fund would be exempt from income tax in India.

Expatriate concessions

Are there any concessions made for expatriates in India?

Certain exemptions are available to foreign nationals and/or non-residents, subject to fulfillment of prescribed conditions. The exemptions available include the following:

  • Remuneration for services rendered by a foreign national, employed by a foreign enterprise during their stay in India, is exempt if: 
    • the total period of the stay in India does not exceed 90 days in a tax year
    • the foreign enterprise is not engaged in any trade or business in India; and
    • the remuneration is not cross charged to an entity subject to Indian income tax.
  • Remuneration received by or due to a non-resident foreign national for services rendered in connection with employment on a foreign ship, where the total period of the stay in India does not exceed an aggregate period of 90 days in a tax year, is exempt from tax. 
  • Remuneration received by a foreign national working as an employee of a foreign government is exempt from tax, if the remuneration is received in connection with training activity in an undertaking, office, or company owned by the government.
  • Remuneration from any cooperative technical assistance program in accordance with an agreement entered into by the central government with a foreign government is exempt from tax, provided:
    • the remuneration is received from the foreign government
    • the employee is required to pay income tax to another foreign government on income arising outside India.

In addition, concessions/benefits such as short-stay or exclusions are also available under the Double Tax Avoidance Agreement between India and host country/jurisdiction.

Salary earned from working abroad

Is salary earned from working abroad taxed in India? If so, how?

Compensation for work performed by an employee abroad, which is not in connection with the services being rendered in India, is not taxable in India, unless the same is received in India, where the employee qualifies as NR or NOR in India.

If the expatriate qualifies as a resident and ordinarily resident of India, the salary earned for working abroad may be taxable in India even if the same is received outside India, and subject to Treaty benefits or benefits under the domestic tax laws of India.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in India? If so, how?

Income from the transfer of a capital asset situated in India is deemed to accrue in India. Hence, all individuals are liable for tax on capital gains arising from the transfer of capital assets in India. Securities Transaction Tax (STT) is leviable on transactions of equity shares in a company, units of an equity oriented Mutual Fund and derivatives which are routed through any recognized stock exchange in India.

TY 2020-21

Long Term Capital Gains:

Specified Securities:

It may be noted that if a security (other than a unit) listed on recognized stock exchange in India or a unit of equity oriented fund or UTI unit or zero coupon bond is held for a period of more than 12 months, it becomes a long term capital asset and any gain arising on sale of such long-term capital asset will be long term capital gains. Long Term Capital Gains from sale of listed equity shares/unit of equity-oriented fund/unit of business trust (subject to Securities Transaction Tax having been paid at specified times) computed without giving indexation benefit, exceeding INR100,000, shall be taxed at 10 percent (plus applicable surcharge and cess). Relief is provided in respect of unrealized gains until 31 January 2018, in case of shares/units already held by taxpayers. The tax calculation needs to be done in the specified manner.

Other Capital Securities:

If a capital asset (other than mentioned in above para) is held for a period of more than 36 months*, then it would be a long-term capital asset and any gains arising on account of sale of such capital asset will be considered as long term capital gains. These long-term capital gains are taxable at a special rate of tax at 20 percent. Further, the benefit of indexation can be availed. This is law in general and is subject to few exceptions. If there is a long-term capital loss, then it can be carried forward to 8 subsequent assessment years for set-off against taxable long-term capital gains.

Short Term Capital Gains:

Specified Assets:

If a security (other than a unit) listed on recognized stock exchange in India or a unit of equity oriented fund or UTI unit or zero coupon bond is held up to 12 months, it becomes a short term capital asset and any gains arising on account of such sale will be considered as short term capital gains*. The short-term capital gains are taxable at special rate of tax at 15 percent. Further, if there is any loss incurred on such transaction, then it can be carried forward to 8 subsequent assessment years for set-off against taxable capital gains.

Other Capital Assets:

If a capital asset (other than mentioned in above para) is held for less than 36 months*, then it would be a short-term capital asset and any gains arising on account of sale of such capital asset will be considered as short term capital gains. These short-term capital gains are taxable at normal slab rate of tax of the assessee. Further, if there is any loss incurred on such transaction, then it can be carried forward to 8 subsequent assessment years for set-off against taxable capital gains.

Common points for both long term and short-term Capital Gains:

* As per Finance Act 2016, with effect from 1 April 2016, in case of share of a company (not being a share listed in a recognized stock exchange in India), for the words ’36 months’, words ’24 months’ have been substituted.

Further, as per the Finance Act 2017, long-term capital gains arising from sale of listed shares if Securities Transaction Tax (STT) was not paid at the time the shares were acquired will be taxable.

* Also, Immovable property (Land or building or both) would need to be held only for 24 months (earlier 36 months) to be treated as long-term capital asset as per Finance Act, 2017.
As per Finance Act 2018, long term capital exemption from sale of equity shares, unit of equity-oriented fund or units of business trust under Section 10(38) has been withdrawn. And new section 112A has been inserted, to tax long-term capital gains in case of transfer of the following long-term capital assets (held for a minimum period of 12 months):

  • equity shares of a company listed on a recognized stock exchange; or
  • a unit of an equity-oriented fund; or
  • a unit of a business trust.

Tax payable on such capital gains shall be computed as follows:

  • Tax on such long-term capital gains exceeding INR100,000 at 10 percent (without indexation)
  • Tax on balance income as per the normal provisions.
  • Cost of acquisition, in respect of assets acquired on or before 31 January 2018, shall be higher of:
    • Actual cost of acquisition of such assets or
    • Lower of:
      • fair market value of such assets as on 31 January 2018; or
      • full value of consideration received or accruing as result of transfer of the capital asset
      • Cost of acquisition for bonus and right shares acquired before 31 January 2018 – fair market value. Gains accrued up to 31 January 2018 will continue to be exempt.

Dividends, interest, and rental income

Dividend income from shares of companies in India and income from equity oriented mutual fund units (fully exempt), which were earlier subject to a dividend distribution tax in the hands of company / mutual fund now fully taxable in the hands of individual receiving the same. However, Dividend Distribution Tax has not been abolished effective 1 April 2020 and consequently the dividend income is now taxable in the hands of the recipient. Further, interest expenses incurred specifically for earning such dividend income is deductible up to 20 per cent of such dividend income.

Interest income earned in respect of the investments made in India is subject to tax in India. Also, in case of Resident and Ordinarily residents, interest income from foreign investment is taxable, subject to treaty benefits.

Rental income from a house property is taxable in the hands of its legal owner. The net rental income (i.e. gross rent less municipal taxes) is chargeable to tax after making the following deductions:

  • Standard deduction – 30 per cent of the net rental income;
  • Interest on loan taken for purchase of House property. – INR200,000/INR30,000/Amount of interest paid or payable during the tax year, depending on the facts and circumstances of each case.

No other deductions are permissible from the said rental income.

As per the Finance Act 2017 onwards, the maximum amount of house property loss which can be set off against other income is capped at INR200,000. The unadjusted loss during the tax year can be carried forward for se-off against house property income up to 8 subsequent years.

As per the Finance Act, 2019, the taxpayer can treat two house properties owned by the taxpayer as self-occupied property. Accordingly, notional rent from such second self- occupied/vacant property is not required to be offered to tax. Further, the aggregate tax deduction in respect of the interest paid on housing loans with respect to both the aforesaid self-occupied/vacant properties would be capped to INR200,000 per FY.

As per the Finance Bill, 2020, it has been proposed that where the taxpayer opts for new tax regime, no deduction towards interest payment and principal repayment shall be available. Further, any brought forward loss shall also not be available for set off against the income from house property.

Gains from stock option exercises.
 

Benefits from Employees Stock Option Plan (ESOP) are taxed as perquisite in the hands of employees. The taxability of a benefit arising out of ESOPs is triggered at the time of allotment of the specified securities. The perquisite value is determined as the Fair Market Value (FMV) on the date on which the “option” is exercised by the employee as reduced by the amount actually paid by or recovered from the employee in respect of such ESOPs. FMV means the value determined in accordance with the method prescribed by the Central Board of Direct Taxes.

Further, if after exercising the options, the employee holds the shares for some time and sells the same subsequently, the difference between the sale consideration and the FMV considered for calculating the perquisite value would be subject to capital gains tax.

Depending on the period of holding of the shares, capital gains would be considered either as short-term or long-term.

In case of eligible start-up employers issuing specified securities (e.g. ESOP etc.), from FY 2020-21 onwards, tax on perquisite on exercise of ESOP shall be payable within 14 days of the earliest of the following :

  • Expiry of 60 months from the end of the relevant tax year in which the options are exercised; or
  • The date of sale of such shares by the individual; or
  • The date the individual ceases to be an employee of such start-up.

The rate for such tax shall be the rate applicable in the tax year in which the specified security is allotted to the employees.

Principal residence gains and losses

There is no specific provision governing the taxability of gains and losses of principal residence.

Capital losses

Subject to certain conditions, the capital losses incurred by the assignee can be set-off only against the capital gains during the tax year. If the loss cannot be set-off, the amount can be carried forward to 8 subsequent financial tax years to be set-off against specified capital gains.

Gifts

Any sum(s) received (except for sums received from specified relatives and in certain other specified situations) by an individual from any person in cash/cheques/draft/any other mode or by way of credit or otherwise than as adequate consideration for goods and services, aggregate of inadequate value of such sums received during the tax year is taxable in the hands of the recipient as "income from other sources." However, where the total of such receipts does not exceed INR50,000 in the aggregate during the tax year, the said sums are not taxable.

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in India? If so, please discuss?

For non-residents, capital gains arising from transfer of shares or debentures of an Indian company are calculated in the same foreign currency which was initially used to purchase such shares or debentures and the cost inflation index is not applied to such gains. Long-term capital gains arising from the transfer of specified bonds or Global Depository Receipts issued in foreign currency are taxed at the rate of 10 percent.

Are there capital gains tax exceptions in India? If so, please discuss?

Exemption from long-term capital gains may be claimed by making investment in a residential house property in India and/or certain bonds, and/or equity of an Eligible Business subject to specified conditions.

Pre-CGT assets

Not applicable.

Deemed disposal and acquisition

Not applicable.

General deductions from income

What are the general deductions from income allowed in India?

Deductions are allowed in India against the taxable income (restricted to taxable income) based on nature of investments, expenses incurred, income earned, etc.

Particulars

Limitation for tax year 2019/2020

Limitation for tax year 2020/2021

Life insurance premiums**

INR150,000

INR150,000

Subscriptions and accrued interest to National Savings Certificates

INR150,000

INR150,000

Contribution to recognized Provident Funds/approved superannuation fund by employees/Public Provident Fund in India

INR150,000

INR150,000

Contribution to National Pension System (NPS)

INR150,000***

INR150,000***

Repayment of a loan towards cost of purchase/construction of new residential house

INR150,000

INR150,000

Amount paid as Stamp Duty and Registration charges at the time of purchase of a house.

INR150,000

INR150,000

Term Deposit for a fixed period of not less than 5 years with a scheduled bank as per the scheme framed and notified by Central Government

INR150,000

INR150,000

Subscription to Units of specified Mutual Fund or United Linked Insurance Plan 1971 (ULIP) of Unit Trust of India

INR150,000

INR150,000

Subscription to equity shares or debentures of public company/public financial institution, proceeds of which will be utilized for any business related to infrastructure/power/industrial park/telecommunications/reconstruction of power generating plant/laying and operating natural gas distribution network subject to certain conditions

INR150,000

INR150,000

Tuition fees (excluding any development fee or donation or payment of similar nature) to any university/school/educational institute within India for each child subject to maximum of two children)

INR150,000

INR150,000

Payment for non- commutable deferred annuity, or notified annuity plan of LIC or other prescribed insurer(s)

INR150,000

INR150,000

Contribution to Unit Linked Insurance Plan of LIC Mutual Fund

INR150,000

INR150,000

Contribution to Pension Fund of notified Mutual Fund or of the Unit Trust of India

INR150,000

INR150,000

Subscription to notified Deposit Scheme/Contribution to any notified deposit scheme Pension Fund of National Housing Bank

INR150,000

INR150,000

Subscription to deposit schemes of Public Sector Undertakings providing long term finance for housing or any authority constituted in India for purpose of dealing with or satisfying the need for housing accommodation (any such scheme must be notified by Central Government by notification in the official gazette)

INR150,000

INR150,000

Investment in Senior Citizen Savings Scheme Rules

INR150,000

INR150,000

Subscription of any bonds issued by National Bank for Agriculture and Rural Development (NABARD) as notified by Central Government

INR150,000

INR150,000

5-year time deposit in an account under the Post Office Time Deposit Rules, 1981

INR150,000

INR150,000

Any sum deducted from salary payable to a Government employee for the purpose of securing them a deferred annuity for the benefit of the individual, their spouse or children (subject to a maximum of 20 per cent of salary)

INR150,000

INR150,000

Contribution to Sukanya Samriddhi Account

INR150,000

INR150,000


*All the above payments have been clubbed together without any sub limit and may be subject to further conditions. The maximum deduction allowed for all of the above payments cumulatively is INR150,000. (Section 80C of Income Tax Act, 1961)

** Deduction towards premium paid for life insurance policies shall apply only to so much of premium paid as is not in excess of ten per cent of the actual capital sum assured (issued on or after 1 April 2012) and twenty per cent of the actual capital sum assured (before 1 April 2012).

*** The aggregate deduction in respect of contribution to NPS is INR200,000 and the same is available in two parts as follows:

  • Within the overall limit of INR150,000 per annum for all the above listed deductions;
  • Additional deduction of up to INR50,000 per annum is available in respect of the individual’s contribution to NPS for the tax year 2014-15 onwards.

In respect of certain investments/deposits/contributions as given above, which are eligible for deduction, a minimum period of holding has been prescribed. The same should be adhered to. Such cases are given below:

Name of investments/deposits

Minimum period of holding

Unit-linked insurance plan (ULIP)

5 years

Life Insurance premium

2 years

Contribution to Public Provident Fund

15 years (premature withdrawals up to specified amounts are permitted subject to certain conditions)

Repayment of a loan towards cost of purchase/construction of new residential house

5 years

Deposits under Senior Citizen Saving Scheme

5 years

Time deposit in Post Office

5 years

Equity Linked Saving Scheme (ELSS)

3 years

Contribution to Sukanya Samriddhi Account

Minimum tenure of contribution is 14 years from the date of opening of account

*As per the Finance Act, 2020, when an individual opts for new tax regime taxation, specified deductions under chapter VI-A of the Act (such as section 80C, section 80D, Section 80G, etc.) cannot be claimed. The only deductions that can be claimed are decoction under sub-section (2) of the section 80CCD (employer contribution on account of employee in notified pension scheme) and section 80JJAA (for new employment)

Deduction in respect of maintenance including medical treatment of a dependent who is a person with disability (Section 80DD of the Act)

Deduction of INR75,000 available to resident person for expenditure incurred towards medical treatment and maintenance of a dependent who is a person with disability and INR125,000 in case the said dependent is a person with severe disability

Deduction in respect of expenses incurred for medical treatment of person with specified disease (Section 80DDB of the Act)

Deduction up to INR40,000 available to resident person for expenditure incurred towards medical. Further, in respect of expenditure incurred for senior citizen (i.e. age of 60 or above) deduction of INR0.1 million is available. In case, any amount is recovered from insurance for such medical expenses, deduction needs to be reduced for such insurance amount.

Deduction in respect of interest on loan taken for higher education (Section 80E of the Act)

In accordance with the domestic tax law in India, in computing the total income of an individual, the amount paid by the individual (out of their income chargeable to tax) by way of interest on loan taken by them from specified financial institutions (including banks)/charitable institutions for the purpose of higher education of themselves/their relatives is an eligible deduction.

Deduction for interest paid on loan shall be available for earlier of the following period:

·        for the period of 8 years starting from the tax year in which taxpayer start paying interest; or

·        until the interest on such loan is paid in full.

 

Deduction in respect of interest payable on loan taken for the purpose of purchase of electric vehicle (Section 80EEB of the Act)

 

Deduction up to INR150,000 is available to any individual taxpayer towards interest payable on loan taken for the purpose of purchase of electric vehicle. This deduction is applicable only in cases where the loan is sanctioned by prescribed financial institution during the period beginning on 1 April 2019 and ending on 31 March 2023.

 

Deduction for rent paid (Section 80GG of the Act)

Individuals paying rent in excess of 10 percent of taxable income for an accommodation (furnished/unfurnished) but not receiving a house rent allowance from employer, can claim a deduction of lower of following:

Rent Paid – 10 percent of taxable income; or INR5,000 per month (or INR60,000 per annum); or 25 percent of taxable income

Deduction in respect of interest on deposits in savings account (Section 80TTA of the Act)

Additional deduction up to INR10,000 per annum towards interest on deposits (excluding time deposits) in a savings account with specified banks, co-operative societies and post offices, for individuals/HUFs from tax year 2012/13 onwards.

Deduction in respect of interest on deposits in case of senior citizens (Section 80TTB of the Act)

Deduction up to INR50,000 per annum towards interest on deposits (including time deposits) with specified banks, co-operative societies and post offices, for senior citizen individuals from tax year 2018/19 onwards. However, no deduction under section 80TTA shall be allowed in these cases

Deduction in case of person with disability (Section 80U of the Act)

Deduction of INR75,000 available to resident person with disability and INR125,000 to a resident person with severe disability certified with medical authority.

Deduction for interest in relation to house property:

Particulars

Limitation for tax year 2019/2020

Limitation for tax year 2020/2021

Deduction of interest payable on capital borrowed for acquisition, construction, repair etc. of a self-occupied house up to

INR200,000*

INR200,000*

Deduction of interest for a let-out house property/deemed let out house

Actual interest payable

Actual interest payable

Loans should be taken on or after

and Acquisition or construction of house is completed

1 April 1999

Within 5 years from end of financial year in which loan was taken.

1 April 1999

Within 5 years from end of financial year in which loan was taken.

In any other case

INR30,000

INR30,000

*Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the 4 immediately succeeding previous years.

*If an individual is holding more than one house property during the FY, the maximum House property loss that can be set off against other specified income is INR200,000 only in the same FY. Balance House property Loss can be carried forward for maximum 8 FYs to adjust with House Property income if any.

*As provided by the Finance Act 2019, the taxpayer can treat two house properties owned by them as self-occupied property. Accordingly, notional rent from such second self- occupied/vacant property is not required to be offered to tax. Further, the overall tax deduction in respect of the interest paid on housing loans with respect to both the aforesaid self-occupied/vacant properties would be capped to INR200,000/- per tax year.

*As per the Finance Act, 2020, it has been proposed that where the taxpayer opts for new tax regime, no deduction towards interest payment and principal repayment shall be available. Further, any brought forward loss shall also not be available for set off against the income from house property.

 *As per the Finance Act, 2020, it has been proposed that deduction of INR150,000 with respect to interest paid on affordable housing i.e. housing loan below INR4.5 million (for loan approved during 1 April 2019 to 31 March 2020) has now been extended for loans approved up to 31 March 2021. However, where the taxpayer opts for new tax regime, no deduction is available under this section.

Taxability of an employer provided car:

Nature of benefit provided by the employer

Value of perquisite for tax year 2019/2020

Value of perquisite for tax year 2020/2021

Motor car is owned/hired by employer

(a) Car used exclusively in performance of official duties

No value, provided specified documents[1] are maintained by employer

No value, provided specified documents[2] are maintained by employer

(b) Car used exclusively for personal purpose by the employee or any member of their household[3] and expenses on maintenance and running are met/ reimbursed by employer

 

Actual amount of expenditure incurred including the remuneration paid to the chauffeur by the employer

plus, amount representing normal wear and tear of the car[4]

as reduced by any amount charged from the employee

Actual amount of expenditure incurred including the remuneration paid to the chauffeur by the employer

plus, amount representing normal wear and tear of the car[5]

as reduced by any amount charged from the employee

(c) Car used partly for official duties and partly for personal purpose by employee or any member of their household

(i) Expenses on maintenance and running are met/ reimbursed by employer

 (ii) Expenses on maintenance and running for personal use are fully met by employee

 

 

INR1,800*/INR2,400** per month (plus INR900 if chauffeur is provided)

 

INR600*/INR900** per month (plus INR900 if chauffeur is provided)

 

 

 

INR1,800*/INR2,400** per month (plus INR900 if chauffeur is provided)

 

INR600*/INR900** per month (plus INR900 if chauffeur is provided)

Motor car is owned by employee and running expenses met or reimbursed by employer

(a) Car used exclusively in performance of official duties

No value provided the specified documents are maintained by employer

No value provided the specified documents are maintained by employer

(b) Car used partly for official duties and partly for personal purpose by them or any member of their household

 

Actual amount incurred by employer as reduced by INR1,800*/Rs 2,400** per month (plus INR900 if chauffeur is provided) (Refer Note 3[6])

Actual amount incurred by employer as reduced by INR1,800*/INR2,400** per month (plus INR900 if chauffeur is provided) (Refer Note 3[7])

Any other automotive conveyance is owned by employee, and running and maintenance expenses are met/reimbursed by employer

a) Used exclusively in performance of official duties

No value provided the specified documents are maintained by employer

No value provided the specified documents are maintained by employer

(b) Used partly for official duties and partly for personal purpose by them

 

Actual amount of expenditure incurred by employer as reduced by INR900 per month

* Refer Note 1

Actual amount of expenditure incurred by employer as reduced by INR900 per month

* Refer Note 1

* Where cubic capacity of engine does not exceed 1.6 liters

** Where cubic capacity of engine exceeds 1.6 liters

[1] Specified Documents:

(a) Employer has maintained complete details of journey undertaken for official purpose which may include date of journey, destination, mileage, and the amount of expenditure incurred thereon

(b) The employer gives a certificate to the effect that the expenditure was incurred wholly and exclusively for performance of official duties

[2] Specified Documents:

(c) Employer has maintained complete details of journey undertaken for official purpose which may include date of journey, destination, mileage, and the amount of expenditure incurred thereon

(d) The employer gives a certificate to the effect that the expenditure was incurred wholly and exclusively for performance of official duties

[3] Member of household includes spouse(s), children and their spouses, parents and servants and dependents

[4] The normal wear and tear of a motor car shall be taken at 10 percent per annum of the actual cost of the motor car(s)

[5] The normal wear and tear of a motor car shall be taken at 10 percent per annum of the actual cost of the motor car(s)

[6]  Note 1: Wherein the employer or employee claims:

  • that motor car has been used exclusively in performance of office duties, or
  • actual expenses on running and maintenance of the car owned by employee

is more than the amounts deductible as specified, then they may claim a higher amount attributable to such use and the value of the perquisite shall be actual amount attributable to official use of the vehicle, provided the specified documents are maintained by employer

[7]  Note 1: Wherein the employer or employee claims:

  • that motor car has been used exclusively in performance of office duties, or
  • actual expenses on running and maintenance of the car owned by employee

is more than the amounts deductible as specified, then they may claim a higher amount attributable to such use and the value of the perquisite shall be actual amount attributable to official use of the vehicle, provided the specified documents are maintained by employer.

The value of unfurnished rent-free accommodations:

Nature of benefit provided by the employer

Value of perquisite for tax year 2019/2020

Value of perquisite for tax year 2020/2021

Motor car is owned/hired by employer

(a) Car used exclusively in performance of official duties

No value, provided specified documents[1] are maintained by employer

No value, provided specified documents[2] are maintained by employer

(b) Car used exclusively for personal purpose by the employee or any member of their household[3] and expenses on maintenance and running are met/ reimbursed by employer

 

Actual amount of expenditure incurred including the remuneration paid to the chauffeur by the employer

plus, amount representing normal wear and tear of the car[4]

as reduced by any amount charged from the employee

Actual amount of expenditure incurred including the remuneration paid to the chauffeur by the employer

plus, amount representing normal wear and tear of the car[5]

as reduced by any amount charged from the employee

(c) Car used partly for official duties and partly for personal purpose by employee or any member of their household

(i) Expenses on maintenance and running are met/ reimbursed by employer

 (ii) Expenses on maintenance and running for personal use are fully met by employee

 

 

INR1,800*/INR2,400** per month (plus INR900 if chauffeur is provided)

 

INR600*/INR900** per month (plus INR900 if chauffeur is provided)

 

 

 

INR1,800*/INR2,400** per month (plus INR900 if chauffeur is provided)

 

INR600*/INR900** per month (plus INR900 if chauffeur is provided)

Motor car is owned by employee and running expenses met or reimbursed by employer

(a) Car used exclusively in performance of official duties

No value provided the specified documents are maintained by employer

No value provided the specified documents are maintained by employer

(b) Car used partly for official duties and partly for personal purpose by them or any member of their household

 

Actual amount incurred by employer as reduced by INR1,800*/Rs 2,400** per month (plus INR900 if chauffeur is provided) (Refer Note 3[6])

Actual amount incurred by employer as reduced by INR1,800*/INR2,400** per month (plus INR900 if chauffeur is provided) (Refer Note 3[7])

Any other automotive conveyance is owned by employee, and running and maintenance expenses are met/ reimbursed by employer

a) Used exclusively in performance of official duties

No value provided the specified documents are maintained by employer

No value provided the specified documents are maintained by employer

(b) Used partly for official duties and partly for personal purpose by them

 

Actual amount of expenditure incurred by employer as reduced by INR900 per month

* Refer Note 1

Actual amount of expenditure incurred by employer as reduced by INR900 per month

* Refer Note 1

* Where cubic capacity of engine does not exceed 1.6 liters

** Where cubic capacity of engine exceeds 1.6 liters

[1] Specified Documents:

(a) Employer has maintained complete details of journey undertaken for official purpose which may include date of journey, destination, mileage, and the amount of expenditure incurred thereon

(b) The employer gives a certificate to the effect that the expenditure was incurred wholly and exclusively for performance of official duties

[2] Specified Documents:

(c) Employer has maintained complete details of journey undertaken for official purpose which may include date of journey, destination, mileage, and the amount of expenditure incurred thereon

(d) The employer gives a certificate to the effect that the expenditure was incurred wholly and exclusively for performance of official duties

[3] Member of household includes spouse(s), children and their spouses, parents and servants and dependents

[4] The normal wear and tear of a motor car shall be taken at 10 percent per annum of the actual cost of the motor car(s)

[5] The normal wear and tear of a motor car shall be taken at 10 percent per annum of the actual cost of the motor car(s)

[6]  Note 1: Wherein the employer or employee claims:

  • that motor car has been used exclusively in performance of office duties, or
  • actual expenses on running and maintenance of the car owned by employee

is more than the amounts deductible as specified, then they may claim a higher amount attributable to such use and the value of the perquisite shall be actual amount attributable to official use of the vehicle, provided the specified documents are maintained by employer

[7]  Note 1: Wherein the employer or employee claims:

  • that motor car has been used exclusively in performance of office duties, or
  • actual expenses on running and maintenance of the car owned by employee

is more than the amounts deductible as specified, then they may claim a higher amount attributable to such use and the value of the perquisite shall be actual amount attributable to official use of the vehicle, provided the specified documents are maintained by employer

5. The value of unfurnished rent-free accommodations:

Nature of benefit provided by the employer

Perquisite Value for tax year 2019/2020

Perquisite Value for tax year 2020/2021

Where unfurnished accommodation is provided by employer other than Central/State Government

(a) Accommodation is owned by the employer

 

-15% of salary in cities where population is more than INR2.5 million

-10% of salary in cities where population is more than INR1 million but does not exceed INR2.5 million

- 7.5% in cities in other areas

as reduced by the rent, if any, paid by the employee.

* Refer Note 2[1] and Note 3

-15% of salary in cities where population is more than INR2.5 million

-10% of salary in cities where population is more than INR1 million but does not exceed INR2.5 million

- 7.5% in cities in other areas

as reduced by the rent, if any, paid by the employee.

* Refer Note 2[2] and Note 3

(b) Accommodation is taken on lease or rent by the employer

 

Lower of:

-actual amount of lease rent payable by the employer;

Or

-15% of salary;

as reduced by the rent, if any, paid by the employee.

* Refer Notes 2

 Lower of:

-actual amount of lease rent payable by the employer;

Or

-15% of salary;

as reduced by the rent, if any, paid by the employee.

* Refer Notes 2

Accommodation is provided by the employer in a hotel[3]

(a) Accomm-
odation
is provided for
a period of up to 15 days
in the aggregate on
account of transfer of employee from one
place to another

 

 

Not taxable

 

Not taxable

(b) Accomm-
odation is provided
for a
period of more than
15 days in the
aggregate on
account of
transfer of
employee from
one place to another

 

Lower of:

-Actual charges paid by the employer;

Or

-24% of salary;

as reduced by the rent, if any, paid by the employee.

Lower of:

-Actual charges paid by the employer;

Or

-24% of salary;

as reduced by the rent, if any, paid by the employee.

Employee Receives
Cash Allowance (self-procured housing)
(refer Note 4)

The least of the following is tax-exempt:

·        Allowance actually received

·        Actual rent paid by employee in excess of 10 percent of salary (Refer Note 3)

·        50 percent of salary (Refer Note 3) if residing in Mumbai, Kolkata, Delhi, Chennai or 40 percent of salary (Refer Note 3) in other places.

The least of the following is tax-exempt:

·        Allowance actually received

·        Actual rent paid by employee in excess of 10 percent of salary (Refer Note 3)

50 percent of salary (Refer Note 3) if residing in Mumbai, Kolkata, Delhi, Chennai or 40 percent of salary (Refer Note 3) in other places.

Note 3: “Salary” includes basic salary and dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.

Note 4: No exemption shall be allowed for HRA in case:

  • the residential accommodation occupied by the assessee is owned by them; or
  • the assessee has not actually incurred expenditure on payment of rent (by whatever name called) in respect of the residential accommodation occupied by them.

[1] Note 2: In case of furnished accommodation, the perquisite value will be increased by 10 percent of the cost of furniture/actual hire charges, as reduced by the amount actually paid by the employee.

[2] Note 2: In case of furnished accommodation, the perquisite value will be increased by 10 percent of the cost of furniture/actual hire charges, as reduced by the amount actually paid by the employee.

[3] ‘Hotel’ includes licensed accommodation such as motel, service apartment or guest house

Charitable contribution deduction:

The contribution (i.e. donation) to specified institutions/funds is eligible for deduction at specified percentages (i.e. 50 percent or 100 percent) from the gross total income. The qualifying amounts of certain contributions are restricted to 10 percent of the gross total income. Cash donations exceeding INR2,000 is not eligible for deduction.

Deduction in respect of Health Insurance Premia (Section 80D of the Act):

The medical insurance premium paid in respect of approved insurance scheme and specified medical expenditure is eligible for deduction from the gross total income.

Particulars

For tax year 2019/2020 (refer to Notes A & B below)

For tax year 2020/2021 (refer to Notes A & B below)

 

 

 

Senior Citizen (resident individual 60 years or older)

The deduction is the lower of 100% premium or INR50,000.An additional deduction of the lower of 100% premium or INR50,000 for premium paid for senior citizen parent/parents

The deduction is the lower of 100% premium or INR50,000.

An additional deduction of the lower of 100% premium or INR50,000 for premium paid for senior citizen parent/parents

Other than Senior Citizen

The deduction is the lower of 100% premium or INR25,000.

An additional deduction of the lower of 100% premium or INR25,000 for premium paid for non-senior citizen parent/parents. In case the parent/parents are senior citizen, the limit is INR50,000 for the same.

The deduction is the lower of 100% premium or INR25,000.

An additional deduction of the lower of 100% premium or INR25,000 for premium paid for non-senior citizen parent/parents. In case the parent/parents are senior citizen, the limit is INR50,000 for the same.

Medical expenditure incurred for senior citizen family member (i.e. self, spouse or dependent children) is eligible for deduction up to INR50,000. Further, medical expenditure incurred for senior citizen parent(s) is also eligible for deduction up to INR50,000 provided no medical insurance premium is paid.

Payment made up to INR5,000 per annum (including cash payment) towards preventive health check-ups for self, spouse, dependent children, parent(s) included within the current overall deduction limits for health insurance premium/contribution payments.

Note A: In case of an individual who is below the age of 60 years and parent(s)’s age is 60 or older, the aggregate deduction in respect of health insurance premium and medical expenditure cannot exceed INR75,000.

Note B: In case of an individual who is above the age of 60 years, the aggregate deduction in respect of health insurance premium, and medical expenditure cannot exceed INR100,000.

Provident Fund (“PF”), Gratuity, and Superannuation Fund:

Particulars

Maximum Tax Benefits/ Deduction/ Limits available for FY 2019/2020

Maximum Tax Benefits/ Deduction/ Limits available for FY 2020/2021

Employee’s contribution to PF

INR150,000*

INR150,000*

Employer’s contribution to PF

12% of salary **

12% of salary **#

Gratuity maximum limit

INR2,000,000

INR2,000,000

Employer’s contribution Superannuation Fund

Up to INR150,000

Up to INR750,000#

Employee’s contribution to National Pension Fund

1. INR150,000*

 

2. Additional deduction of INR50,000

1. INR150,000*

 

2. Additional deduction of INR50,000

Employer’s contribution to National Pension Fund

10% of salary (Basic + Dearness Allowance)

10% of salary (Basic + Dearness Allowance)#


* part of overall limit of INR150,000 per annum for all investments including listed at point no.2 above i.e. section 80C of the Act.

**“Salary” includes basic salary, dearness allowance and cash value of any food concession if the terms of employment so provide but excludes all other allowances and perquisites.

#Under the old provisions, the employer contribution to Provident Fund in excess of 12 percent of specified salary, employer contribution to Superannuation Fund in excess of INR150,000 and employer contribution to National Pension System in excess of 10 percent of specified salary is taxable as salary. As per the changes made by the Finance Act, 2020, the aggregate of employer contributions towards Provident Fund, Superannuation fund, National Pension System exceeding INR750,000 will be taxable as a perquisite in the hands of the employee. Further, annual accretion (interest, dividend or other income) to the extent it relates to the taxable employer’s contribution as above, will also be treated as a taxable perquisite in their hands.

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in India?

In case where the company bears the tax liability for the employees / expatriates, the company normally deposits the tax directly with the tax authorities by way of withholding taxes.

Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in India? For example, pay-as-you-earn (PAYE), pay-as-you-go (PAYG), and so on.

The India tax system runs on pay-as-you-earn basis in respect of salary payments. Accordingly, tax needs to be withheld and deposited with the tax authorities on a monthly basis. If the taxes are not deducted interest is levied at the rate of 1 per cent per month or part of the month for the months for which tax has not been deducted. If the taxes deducted are not deposited into the Government treasury, there would be an interest charged at the rate of 1.5 percent per month or part of the month leviable for all the months for which taxes have not been paid till date of the payment of tax. The tax withheld needs to be deposited within 7 days from the end of the month (for the month of March tax may be deposited on or before 30 April and 7 April where tax on non-monetary perquisites are borne by employer).

Pay-as-you-earn (PAYE) withholding

Every person responsible for making payment of employees' remuneration has an obligation to deduct tax on a monthly basis from the employees' remuneration at the time of payment thereof. Tax is to be deducted on the estimated income of the employee after allowing certain permissible deductions.

Even foreign employers are not exempt from such withholding tax obligations.

Advance tax installments

In case the amount of tax being withheld at source is short of the actual tax liability, an individual is liable to pay advance tax. Advance tax provisions have been discussed earlier above under “Tax Returns and Compliance”.

When are estimates/prepayments/withholding of tax due in India? For example: monthly, annually, both, and so on.

Any person making the payment of salary to an employee is liable to deduct tax at the time of payment of salary to its employees. The tax deducted is to be deposited with the central government within 7 days from the end of the month in which tax is deducted (except the tax deducted in the month of March may be deposited on or before 30 April, and 7 April where tax on non-monetary perquisites are borne by employer). The employer is also required to file quarterly withholding tax statements with Indian Revenue Authorities in respect of the tax deducted at source during the year as below.

Quarter

Due Date

1 – April to June

31 July

2 – July to September

31 October

3 – October to December

31 January

4 – January to March

31 May

Furthermore, an annual salary certificate (namely Form 16) is required to be issued to the employee in respect of tax deducted at source by employer by 15 June of the end of the Financial Year.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in India? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

A resident and ordinary resident in India is entitled to claim credit for foreign taxes paid on foreign-sourced income against the Indian tax payable on such income:

  • where agreement for avoidance of double taxation exists between the two countries/jurisdictions, in accordance with the terms of that agreement.
  • in other cases, at the lower of the foreign or Indian rates of tax, or at the Indian rate of tax, if both the rates are equal.

Rules have been notified in India for availing Foreign Tax Credit (FTC) in India and the same are applicable from TY 2016-17. Accordingly, taxpayer availing FTC needs to provide declaration in Form 67 along with specified documents justifying taxes paid/deducted at source in foreign country/jurisdiction.

India has Double Taxation Avoidance Agreement (DTAA) with more than 100 countries/jurisdictions (Comprehensive and limited).

There is no specific provision for the employee to consider FTC benefit at the time of withholding taxes from salary income.

In the absence of aforesaid specific provision, the employee may consider claiming the said treaty benefit at the time of filing their personal tax return.

Further, FTC rules are applicable from FY 2016-17. FTC rules provide for following set of documents for claiming FTC in the India Tax Return:

  1. Statement of income from the country/jurisdiction or specified territory outside India offered for tax for the previous year and of foreign tax deducted or paid on such income in a prescribed Form No. 67 and verified in the manner specified therein. This Form is required to be submitted to the India tax authorities before filing of the India tax return for the particular FY.
  2. Certificate or statement specifying the nature of income and the amount of tax deducted therefrom or paid by the assessee.
  3. From the tax authority of the country/jurisdiction or specified territory outside India; or from the person responsible for deduction of such tax; or Signed by the assessee.

Provided that the statement furnished by the assessee in 3 above shall be valid if it is accompanied by:

  • an acknowledgement of online payment or bank counterfoil or challan for payment of tax where the payment has been made by the assessee
  • proof of deduction where the tax has been deducted at source.

Relief under the DTAA (i.e. exclusion of income, lower tax rate, etc.) will be available only if a Tax Residency Certificate (‘TRC’) is obtained by a Resident taxpayer (under the tax treaty) from the Government of other country/jurisdiction or specified territory of which they are a resident. Additionally, the taxpayer is required to provide such other documents and information as may be prescribed in Form 10F.

Further, TRC would be regarded as a necessary but not sufficient condition to avail the benefits under the DTAA.

General tax credits

What are the general tax credits that may be claimed in your country/jurisdiction? Please list below.

The Indian tax law does not have any specific provisions for tax credit. Deductions from the taxable income, subject to certain limits are available (as discussed in the earlier sections).

Sample tax calculation

This calculation assumes a taxpayer non-resident in India with two children, whose 3-year assignment begins 1 January 2018 and ends 31 December 2020. The taxpayer’s base salary is 100,000 US dollars (USD) and the calculation covers 3 years.

 

2018

USD

2019

USD

2020

USD

Salary

100,000

100,000

100,000

Bonus

20,000

20,000

20,000

Cost-of-living allowance

10,000

10,000

10,000

Housing allowance

12,000

12,000

12,000

Company car

6,000

6,000

6,000

Moving expense reimbursement

0

20,000

0

Home leave

0

5,000

0

Education allowance

3,000

3,000

3,000

Interest income from non-local sources

6,000

6,000

6,000

Exchange rate used for calculation: USD1.00 = INR65.00. Indian tax year runs from 1 April to 31 March.

Other assumptions

  • All salary income is attributable to services rendered in India.
  • Bonuses are paid at the end of each tax year and accrue evenly throughout the year.
  • Interest income is not remitted to India.
  • The company car is used for business and private purposes and originally cost USD50,000. The cubic capacity of the car exceed 1.6 liters and chauffeur is also provided by the employer.
  • Moving expense reimbursement are paid at the time of relocation.
  • The employee is deemed resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.

Year-ended

2018-2019

INR

2019-2020

INR

2020-2021

INR

Days in India during year

90

365

275

Earned income subject to income tax

 

 

 

Salary

1,602,740

6,500,000

4,897,260

Bonus

320,548

1,300,000

979,452

Cost-of-living allowance

160,274

650,000

489,726

Taxable housing allowance

160,274

650,000

489,726

Moving expense reimbursement

0

1,300,000

0

Home leave

0

325,000

0

Education allowance

48,082

195,000

146,918

Motor car

9,900

39,600

29,700

Total earned income

2,301,818

10,959,600

7,032,782

Other income (Income earned outside of India is not taxable in India in case of non-resident)

0

0

0

Total income

2,301,818

10,959,600

7,032,782

Deductions:

40,000

50,000

50,000

Total taxable income

2,261,818

10,909,600

6,982,782

Calculation of tax liability

 

2018-2019

INR

2019-2020

INR

2020-2021

INR

Taxable income as above

2,261,818

10,909,600

6,982,782

Taxes

491,045

3,085,380

1,907,335

Surcharge

NIL

462,807

190,734

Education Cess

 19,642

141,927

83,923

Indian tax thereon

510,687

3,690,114

2,181,992

Less:

 

 

 

Domestic Tax rebates (dependent spouse rebate)

0

0

0

Foreign tax credits

0

0

0

Total Indian tax (rounded off)

510,687

3,690,114

2,181,992

Taxable housing allowance

 

2018-2019

INR

2019-2020

INR

2020-2021

INR

Actual rent (assumed INR700,000 per year)

195,000

780,000

585,000

Actual housing allowance

195,000

780,000

585,000

Least of the following is exempt:

 

 

 

Excess of rent paid over 10% of salary

34,726

130,000

95,274

50% of basic salary*

801,370

3,250,000

2,448,630

Actual housing allowance

195,000

780,000

585,000

Housing allowance exempt

34,726

130,000

95,274

Taxable Housing Allowance

160,274

650,000

489,726

*Assuming that the expatriate is residing in a Metro city. In case of a non-metro city, the percentage is 40 percent.

Calculation of perquisite value in hands of employee

 

2018-2019

INR

2019-2020

INR

2020-2021

INR

Company car

97,500

390,000

292,500

Perquisite value

9,900

39,600

29,700

Total tax burden

 

2018-2019

INR

2019-2020

INR

2020-2021

INR

Total Indian tax

510,687

3,690,114

2,181,992

1. Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country/jurisdiction for a period of less than 183 days in the fiscal year (or a calendar year of a 12-month period), the employee remains employed by the home.

2. For example, an employee can be physically present in the country/jurisdiction for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.

3. Sample calculation generated by KPMG in India (Registered), an Indian Partnership and a member firm affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, based on the tax rates applicable as per the Indian Finance Act 2018, Finance Act 2019 and Finance Act 2020 for the tax year 2018-19, 2019-20 and 2020-21 respectively. Also, for FY 2020-21, we have computed the tax liability based on old tax regime and not as per new tax regime.

Footnote

1. It may be noted that due to COVID-19 pandemic, respective authorities (Taxation / social security / immigration) may provide relaxations and extensions in the statutory requirements from time to time.

Disclaimer

All information contained in this publication is summarized by KPMG (Registered), the Indian member firm affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, based on:

  • the Income-tax Act, 1961, (‘the Act’) as amended; 
  • the Income-tax Rules, 1962 (‘the Rules’) as amended;
  • the Employees Provident Fund and Miscellaneous Provisions Act, 1952 as amended (‘the PF Act’);
  • the Employees’ Provident Funds Scheme, 1952 (“the PF Scheme”) as amended;
  • the Employees’ Pension Scheme, 1995 (“the Pension Scheme”) as amended;
  • the Employees’ Deposit Linked Insurance Scheme, 1976 (“the EDLIS”) as amended;
  • the Employees’ Pension (Third Amendment) Scheme, 2008; 
  • the Employees’ Provident Fund (Third Amendment) Scheme, 2008;
  • the rules and regulations there under the above laws and various other laws and regulations

as amended from time to time, including judicial and administrative interpretations thereof, which are subject to change or modification by subsequent legislative, regulatory, administrative or judicial decisions. Any such change, which could also be retroactive, could have an effect on the validity of our comments. Our views are not binding on any authority or court, and so, no assurance is given that a position contrary to that expressed herein will not be asserted by any authority and ultimately sustained by an appellate authority or a court of law.

© 2021 KPMG Assurance and Consulting Services LLP, an Indian Limited Liability Partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

KPMG (Registered) (a partnership firm with Registration No. BA- 62445) converted into KPMG Assurance and Consulting Services LLP (a Limited Liability partnership firm) with LLP Registration No. AAT-0367 with effect from July 23, 2020.

For more detail about the structure of the KPMG global organization please visit https://home.kpmg/governance.

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