Taxes for expats in any foreign country are a serious matter. This article is the result of thorough research, but you should consult a specialist to determine your best course of action.
Do I have to pay taxes in India?
If you made more than Rs. 2,50,000 in a single financial year from any Indian source, OR if you were a resident of India during a financial year, then you must file a tax return.
The Indian financial year is from April 1st – March 31st.
How do I determine my residency in India?
There are three classifications of residency for non-citizens or expatriates. They have strange names, so we will call them Peacock, Tiger, and Elephant for now. Answer the following questions to determine what you are. The answers to these questions should be supported by your passport.
Q1. Were you in India for 182 days or more in the last financial year?
If Yes, go to question 3. If No, go to question 2.
Q2. Were you living in India for 365 days out of the last four financial years?
If Yes, go to question 3. If No, you are a Peacock.
Q3. Were you living outside of India for 9 out of 10 years preceding this year?
If Yes, you are a Tiger. If No, go to question 4.
Q4. Were you living inside of India for 730 days or more during the seven previous years?
If Yes, you are an Elephant. If No, you are a Tiger.
Generally, if you are on an Indian Employment Visa and you are in your first two years, you are a Tiger. Once you start into your third year, you become an Elephant.
Officially, Peacocks are called “Non-Residents” (NR), Tigers are called “Resident not Ordinarily Resident” (RNOR), and Elephants are called “Resident and Ordinarily Resident” (ROR). (I’ll stick with the animal terms for the rest of the article.)
Peacocks who did not earn above the threshold of Rs. 2,50,000 from an Indian source do not need to file a tax return. Everyone else does, including Peacocks who earned more than this amount.
What am I taxed on?
Peacocks (NRs) are taxed on income received or accrued in India. They are not taxed on non-Indian sources of income
Tigers (RNORs) are taxed on income received or accrued in India AND any income made outside of India derived from a business controlled in India.
Elephants (RORs) are taxed on their worldwide income, including capital gains.
Income in this case includes salary, rental income from houses, profits and gains from business, capital gains, and “other any income source.”
An Example
For example, let’s say that Mitch comes to India for a three-month holiday from October to December in 2012 on an Indian Tourist Visa, but does some remote working in his home country. Mitch is a Peacock. No taxes filed.
However, Mitch liked living in India and finds an Indian company to give him a job there. Mitch starts his job in March 2013 with a salary of two lakhs per month. For the 2012-2013 financial year, Mitch is still a Peacock. He would be wise to still file a tax return, but it is technically not compulsory.
Mitch stays in India all of the next year. For 2013-2014, Mitch is a Tiger and needs to report on his Indian income.
In 2014-2015, Mitch could be a Tiger or and Elephant depending on how many days he was there in 2012. If he’s an Elephant, he’ll also need to report on his rental income from his home country, investments, and any other income he gets. If he stays in India past 2015, he’s definitely an Elephant.
How much do I have to pay?
Most likely, you will be in the top tax bracket where the tax is 30%.
If you make below 10 Lakh (currently US$15,300) in a financial year, the tax is 20%.
If you make below 5 lakh (US$7,600) in a financial year, the tax is 10%.
If you make below 2 lakh (US$3,060) in a year, the tax is 0%.
Credit is provided for taxes paid abroad, but it cannot exceed the amount of tax payable on that income. You will need to consult a specialist to determine the exact amount.
How does the Black Money Bill affect expats?
The “Black Money Bill”, officially known as the The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, was put into effect in May of 2015. Under this law, taxpayers are required to claim all of their foreign accounts overseas. As the name suggests, this bill specifically targets Indians keeping large amounts of money untaxed in overseas accounts.
In June of 2015, the Indian government announced that this bill would not apply to expats.
“An individual who is not an Indian citizen and is in India on a business, employment or student visa (expatriate), would not mandatorily be required to report the foreign assets acquired by him during the previous years in which he was non-resident if no income is derived from such assets during the relevant previous year,” reads a quote from the linked Economic Times article on 1 June 2015.
Elephants would still need to report on any income earned from foreign sources, but need not mention assets that have not generated any income. The bill does not apply to Peacocks and Tigers.
The Black Money Bill is serious because it threatens steep fines and imprisonment if you are found to have not disclosed all of your assets. The Black Money Bill is aimed at those people who have large amounts of money stashed abroad, but it could also be used to intimidate anyone, so it is best to follow the rules.
As mentioned at the start, taxes for expats are a serious issue. Be sure to know the rules and plan accordingly.
Image Credit: Andrew Sorensen on Flickr
The rules are one thing… the practice is another. Rectifications are a nightmare and unfortunately just because you have actually paid taxes does not actually mean all parts of the system recognise that you have paid!!!
Oooh, thanks for the insight. Knowledge is only the beginning of the journey…
Do you have the answer to Q4 reversed? I would think that being outside India for 2 years (729 days) or less in the last 7 years, as you stated, means that I’m in India more often (ordinarily resident) and am an “elephant.” Or I’m still confused. 🙂
The question is right, but the logic jumps around. I’ll rewrite it to clear up any doubts. Thanks for pointing it out.