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India - Other taxes and levies

India - Other taxes and levies

Taxation of international executives

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Social security tax

Are there social security/social insurance taxes in India? If so, what are the rates for employers and employees?

The Ministry of Labour and Employment, in a notification dated 1 October 2008, amended the “Employees’ Provident Funds Scheme, 1952,” and the “Employees’ Pension Scheme, 1995,” collectively referred to as the Indian Social Security Scheme. Accordingly, the scope of the Indian Social Security Scheme was extended to specifically include a new concept of “International Workers” (IWs).

IWs include expatriates working for an employer in India to which the Provident Fund Act applies and Indian employees who have contributed to the Social Security program of a country/territory that has a Social Security Agreement (SSA) with India and are eligible for benefits under these SSAs. Accordingly, all the expatriates holding foreign passports will qualify as IWs in India.

Consequently, all employees who fall within the definition of IWs are required to become members of the Schemes under the Provident Fund Act unless they qualify as ‘excluded employees’

Recent amendment in PF and Pension Scheme

The Ministry of Labour and Employment, Government of India issued a notification providing that a Nepalese national and a Bhutanese national shall be deemed to be an Indian worker. This notification has been effective from 2 November 2016.

  • In view of the above notification, IWs are excluded from contributing towards PF in India: If, they are contributing to social security in their country/territory of origin and obtained a Certificate of Coverage (CoC) under the relevant SSA;
  • ‘OR’
  • Deputed from a country/territory  with which India has entered into a bilateral comprehensive economic agreement before 1 October 2008. (Currently with Singapore only)
  • OR’
  • They are Nepalese national on account of Treaty of Peace and Friendship of 1950 and the worker who are Bhutanese national on account of India-Bhutan Friendship Treaty of 2007, shall be deemed to be Indian workers. (Date of effect: 2 November 2016)

IWs (other than excluded employees) are required to contribute 12 percent of the specified salary (as defined under the EPF Act) to the Indian social security scheme. Employers are also required to contribute 12 percent of their employee’s specified salary to the scheme. A portion of employer’s contribution i.e. 8.33 percent of salary is mandatorily contributed into the pension scheme. However, an employee who is joining and becoming member of the fund on or after 1 September 2014 and has salary exceeding INR15,000 at the time of joining the fund is not required to contribute towards the pension scheme.

Amendments in the Employees’ Pension Scheme, 1995

As per notification issued by Government of India, Ministry of Labour & Employment dated 22 August 2014, the employee who is joining and becoming the member of the fund for the first time on or after 1 September 2014 and has a salary exceeding INR15,000 at the time of joining the fund is not eligible to become member of Employees’ Pension Scheme, 1995.

Therefore, the employer’s entire PF contribution of 12 percent will be contributed towards Provident Fund account and there will be no diversion of employer’s share to the Pension Fund.

Thus, all International Workers who would be becoming the members of the Provident Fund for the first time on or after on or after 1 September 2014 and have salary exceeding INR15,000 at the time of joining the fund would not be eligible to become member of Employees’ Pension Scheme, 1995.

Amendments in the Employees' Deposit Linked Insurance Scheme, 1976 (EDLI)

As per notification issued by Government of India, Ministry of Labour & Employment dated 22 August 2014; the wage ceiling has been enhanced from INR6,500 to INR15,000.

The contribution towards EDLI and its administrative charges will be subject to a salary cap of INR15,000 in case of International Workers.

The contribution must be deposited on a monthly basis by 15th of the following month for which contributions are payable. Necessary forms and returns must be filed with the authorities by the prescribed deadlines.

As on 1 January 2019, India has signed Social Security Agreement (‘SSA’) with 20 countries/territories viz., Belgium, Germany, Switzerland, Denmark, Luxembourg, France, Republic of Korea, Netherlands, Hungary, Norway, Czech Republic, Sweden, Quebec, Canada, Japan, Portugal, Finland, Austria, Australia and Brazil. Out of the 20 countries/territories, the countries/territories with which India has SSAs which are currently effective are as follows:

Sr. No Name of the country/territory Effective Date
1 Belgium 1 September 2009
2 Germany 1 October 2009
3 Switzerland 29 January 2011
4 Denmark 1 May 2011
5 Luxembourg 1 June 2011
6 France 1 July 2011
7 Republic of Korea 1 November 2011
8 Netherlands 1 December 2011
9 Hungary 1 April 2013
10 Sweden 1 August 2014
11 Finland 1 August 2014
12  Czech Republic 1 September 2014
13 Norway 1 January 2015
14 Austria 1 July 2015
15 Canada 1 August 2015
16 Australia 1 January 2016 
17 Japan 1 October 2016
18 Portugal 8 May 2017

Further, Quebec, and Brazil has signed social security agreements but they are yet to come into effect.

Withdrawal of social security contribution

Provident Fund (PF) accumulations 

The IWs who are covered under an operational SSA between India and any other country/territory can withdraw their accumulated PF balances on ceasing to be an employee in an establishment covered under the PF Act.

However, in case a person is not covered under SSA, they may withdraw the PF balance on retirement from service in the company at any time after 58 years of age or is faced with certain contingencies (death/specified illnesses/incapacitation).

 

Pension accumulations (Payable only if the employee is not eligible for Monthly Pension)

In relation to pension withdrawal, the lump sum refund will be available only to those employees who are covered under an SSA in force and who have not completed the eligible service of 10 years even after including the totalization of service under the respective SSAs. Employees not covered under an SSA will not get the lump sum refund.

NOTE: Employee who have joined or become members of EPFS on or after 1 September 2014 and have monthly salary (as defined in the EPF Act) in excess of INR15,000 would not be required to contribute towards pension scheme (EPS), therefore there would be no pension accumulation for those employees.

Monthly Pension

In case of employees (both from SSA as well as Non-SSA countries/territories) having 10 years or older contributory service, they would be qualified to receive a monthly pension.

The employees would also be entitled to receive monthly pension in cases where:

  • If they have rendered eligible service of 10 years or older and retires on attaining the age of 58 years; or
  • Early pension, if they have rendered eligible service of 10 years or older and retires or otherwise ceases to be in the employment before attaining the age of 58 years of age.

NOTE: Employee who have joined or become members of EPFS on or after 1 September 2014 and have monthly salary (as defined in the EPF Act) in excess of INR15,000 would not be required to contribute towards pension scheme (EPS), therefore there would be no pension accumulation for those employees.

Gift, wealth, estate, and/or inheritance tax

Are there any gift, wealth, estate, and/or inheritance taxes1 in India?

There is no estate tax levied in India.

Further, Wealth tax was applicable up to the tax year 2014-15 as the same has been abolished from tax year 2015-16 onwards.

Real estate tax

Are there real estate taxes in India?

Property tax/real estate tax is payable as per local municipal laws on commercial and residential property owned in the respective States.

Sales/VAT tax

Are there sales and/or value-added taxes in India?

India has introduced Goods and Services Tax Act (GST) with effect from 1 July 2017. The act has subsumed 17 indirect tax laws including VAT, Excise law, Service tax, Central sales tax, entry tax etc.

However GST law has not entirely subsumed all the items, following items continue to remain outside the scope.

  1. Alcoholic Liquor for human consumption 
  2. Petroleum Crude, High Speed Diesel, Motor spirit, Aviation Turbine fuel and Natural Gas.

On the above items, either of the respective state VAT and state Excise law or Central excise law continue to apply.

India has a dual-GST model for levy of GST i.e. Central GST and State GST which is applied on all Intra-state supply of goods and/or services and for inter-state supplies (including imports) Integrated GST is levied.

Other taxes

Are there additional taxes in India that may be relevant to the general assignee? For example, customs tax, excise tax, stamp tax, and so on.

GST law in India have subsumed 17 indirect tax laws including VAT, Excise law, Service tax, Central sales tax, entry tax etc.

  • Customs Duty and Additional duties of Customs – These are levied on import into/export out of India of specified goods. Also, these levies are governed by the Federal Government
  • Apart for the above on few items viz. Motor vehicles, tobacco products etc., and compensation cess under GST law is applicable.

Profession tax

Certain states in India levy a profession tax on employees. This tax is to be withheld from salary by the employer and is also deductible in computing the taxable income of the employee.

Foreign Financial Assets

Is there a requirement to declare/report offshore assets (e.g. foreign financial accounts, securities) to the country/territory’s fiscal or banking authorities?

Yes, every individual qualifying as a Resident and Ordinarily Resident of India is required to disclose all their foreign assets and incomes earned therefrom while filing the India tax return.

1Indian Wealth Tax Act, 1957.

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