Residents are subject to tax on their worldwide income. Persons who are resident but not ordinarily resident are taxed only on Indian-source income, income deemed to accrue or arise in India, income received in India or income received outside India arising from either a business controlled, or a profession established, in India. Nonresidents are taxed only on Indian-source income and on income received, accruing or arising in India. Nonresidents may also be taxed on income deemed to accrue or arise in India through a business connection, through or from any asset or source of income in India, or through the transfer of a capital asset situated in India (including a share in a company incorporated in India).
Individuals are considered resident if they meet either of the following criteria:
- They are present in India for 182 days or more during the tax year (that is, the year in which income is earned; in India the tax year runs from 1 April to 31 March).
- They are present in India for 60 days or more during the tax year and present in India for at least 365 days in aggregate during the preceding four tax years (the 60 days’ condition is increased to 182 days in the case of a citizen of India who leaves India in any tax year as a member of the crew of an Indian ship or for the purposes of employment outside India or in the case of a citizen of India or a person of Indian origin who comes for a visit to India in a tax year).
Individuals who do not meet the above criteria are considered to be nonresidents.
Individuals are considered not ordinarily resident if, in addition to meeting one of the above tests, they satisfy either of the following conditions:
- They were nonresident in India in 9 out of the preceding 10 tax years.
- They were present in India for 729 days or less during the previous 7 tax years.
All employees are subject to tax, unless they are exempt under the Income Tax Act, 1961 or applicable tax treaties.
Income subject to tax. In general, all income received or accrued in India is subject to tax.
The taxation of various types of income is described below.
Employment income. All salary income relating to services rendered in India is deem ed to accrue or arise in India regardless of where it is received or the residential status of the recipient.
Employees of foreign enterprises who are citizens of foreign jurisdictions are not subject to tax if all of the following conditions are satisfied:
- The foreign enterprise is not engaged in a trade or business in India.
- The employee does not stay in India for more than 90 days in the tax year.
- The compensation paid is not claimed by the employer as a deduction from taxable income in India.
Similar exemptions are available under tax treaties if the stay is less than 183 days, but conditions vary. Nonresident foreign citizens employed on foreign ships who stay in India no longer than 90 days in a tax year are also exempt from tax on their earnings.
In general, most elements of compensation are taxable in India. However, the following benefits may receive preferential tax treatment, subject to certain requirements:
- Company-provided housing. If the accommodation (including a house, flat, farm house or accommodation in a hotel, motel, service apartment, guest house, caravan, mobile home, ship or other floating structure) is owned by the employer, the amount of the benefit from company-provided housing equals a specified percentage of salary. The percentage is 15% for cities having a population of more than 2,500,000, 10% for cities having a population of more than 1 million but not more than 2,500,000, and 7.5% for other areas. The benefit computed above is reduced by the amount recovered from the employee. If the accommodation is leased by the employer, the amount of the benefit equals the lower of actual rent paid or 15% of salary, less the amount recovered from the employee. Furniture and appliances provided by the employer in the accommodation are taxed at a rate of 10% per year of the cost of items owned by the employer or the actual hire charges, reduced by any charges recovered from the employee, if the employer hires the items. These provisions do not apply to an accommodation provided to an employee working at a mining site or an onshore oil exploration site, a project execution site, a dam site, a power generation site or an offshore site that meets either of the following conditions:
— It is of a temporary nature, has a plinth area not exceeding 800 square feet and is located not less than 8 kilometers away from the local limits of a municipality or cantonment board.
— It is located in a remote area (that is, an area that is located at least 40 kilometers away from a town having a population not exceeding 20,000, based on the latest published all-India census).
- Hotel accommodation. If an employee is provided with hotel accommodation (including licensed accommodation in the nature of motel, service apartment or guest house), tax is imposed on the lower of the actual charges paid by the employer or 24% of salary, reduced by any amount recovered from the employee, unless the accommodation is provided for up to 15 days on relocation. Such accommodation provided for relocation is exempt from tax.
- Interest-free or low-interest loans. The benefit of interest-free loans or low-interest loans exceeding INR20,000 to an employee or to a member of an employee’s household is taxable. The taxable value equals the notional interest computed at a prescribed rate on the maximum outstanding monthly balance, reduced by the interest recovered from the employee. However, no amount is taxable if the loan is provided for medical treatment with respect to “specified diseases,” subject to certain conditions. The interest rate is the rate notified by State Bank of India as of the first day of the tax year (for the 2016-17 tax year, the first day is 1 April 2016) for loans obtained for the same purpose as the loan provided by the employer.
- Company-provided car. If a car is owned or hired by the employer and is used exclusively for the employee’s personal purposes and if the running and maintenance expenses are reimbursed by the employer, the taxable value of the company-provided car equals the actual amount of expenditure incurred by the employer and the normal wear and tear of the car. This computed benefit is reduced by the amount recovered from the employee. Certain allowances, including house rent allowances and leave travel concessions, are either tax-exempt or included in taxable income at a lower value, subject to certain conditions. A bonus paid at the beginning or end of the employment period is included in taxable salary income.
- Employer-paid taxes on “non-monetary” benefits. In general, the amount of tax paid by an employer on behalf of an employee is grossed up and taxed as additional income. The employer may pay taxes on “non-monetary” benefits without taking into account the gross-up. However, in such a situation, the employer cannot deduct such taxes paid in computing its taxable income.
The following employer-paid items are not included in an employee’s taxable compensation to the extent that they do not exceed specified limits:
- Reimbursed medical expenses
- Contributions to Indian retirement benefit funds, including provident, gratuity and superannuation funds
Certain allowances, including house rent allowances and leave travel concessions, are either tax-exempt or included in taxable income at a lower value, subject to certain conditions. A bonus paid at the beginning or end of the employment period is included in taxable salary income.
Self-employment and business income. All individuals who are self-employed or in business in India are subject to tax.
The computation of an individual’s income from a business is similar to the computation of income of a corporation. However, an individual may maintain accounts on a cash or accrual basis if the gross receipts exceed a specified limit.
Taxpayers may generally deduct from gross business income all business-related expenses. Personal expenses and capital expenditure other than expenditure for scientific research are not deductible. Allowable depreciation must be claimed up to the available limit.
Business losses incurred in the current year can be set off against income under any other head except the salaries head. If business losses in the current year cannot be wholly set off, such business losses may be carried forward for eight years if the income tax return for the year of the losses is filed on time. However, the losses carried forward can be set off against business income only. Unabsorbed losses from speculative transactions may be carried forward for four years only and can be set off against profits from speculative business only. Unabsorbed depreciation may be carried forward indefinitely.
Investment income. Domestic companies are required to pay dividend distribution tax on profits distributed as dividends at a rate of 15% plus the applicable surcharge (7% [12% if income is greater than INR10 million]) and education cess (3%). Effective from 1 October 2014, dividends paid are grossed up for the purpose of computing dividend distribution tax. This translates into an effective rate of 17.64% (approximately 20.358% including surcharge and education cess).
Effective from 1 April 2016, resident individuals, Hindu Undivided Families or firms who earn more than INR1 million as dividends from Indian companies will be subject to an additional tax at a rate of 10% plus the applicable surcharge and education cess.
Dividends received from foreign companies are subject to tax in the hands of the individuals at the normal tax rates.
Interest earned on securities, investments, advances and bank deposits in India is taxable. Taxes are withheld at source by the banks, cooperative societies and post offices if the interest exceeds INR10,000 (INR5,000 in other cases) in the tax year except in certain specified cases. The rate of the withholding tax is 10% (plus cess). This withholding tax is not a final tax.
The following interest is exempt from tax:
- Interest earned on nonresident external (NRE) accounts of individuals who qualify as persons resident outside India according to the exchange control laws (see Section I) or who are permitted by the Reserve Bank of India (central bank) to maintain such accounts
- Interest payable by scheduled banks (on approved foreign-currency deposits) to nonresidents and to persons who are not ordinarily resident
Directors’ fees. Directors’ fees are taxed at the progressive rates listed in Rates. Tax is required to be withheld at source at a rate of 10% from directors’ fees paid to residents. Expenses incurred wholly and exclusively for earning fees are allowed as deductions.
Transactions above INR50,000. Transactions above INR50,000 are taxable in certain cases. Any sum of money in excess of INR50,000 received by an individual without consideration is taxable in the hands of the recipient. However, the following exclusions to this rule exist:
- Amounts received by an individual from a relative (as defined in the Income Tax Act, 1961)
- Amounts received on the occasion of the marriage of the individual
- Amounts received under a will, by way of an inheritance or in contemplation of death of the payer
- Amounts received from a local authority as defined in the Income Tax Act, 1961
- Amounts received from a fund, foundation, university or other educational institution, hospital or other medical institution, as defined in the Income Tax Act, 1961
- Amounts received from a trust or institution registered under the Income Tax Act, 1961
If the fair market value or stamp duty value of movable or immovable property received from a non-relative exceed INR50,000, the fair market value or stamp duty value is taxable as income from other sources.
If movable or immovable property is received for consideration that is less than the fair market value or stamp duty of the property by an amount exceeding INR50,000, the difference between the fair market value or stamp duty value and consideration is taxable as income from other sources.
Rental income. Rental income received by an individual from the leasing of house property (including buildings or land appurtenant thereto) is taxable at the value determined in accordance with specific provisions. The following deductions from such value are allowed:
- Taxes paid to local authorities on such property
- A sum equal to 30% of the value
- Interest payable on capital borrowed for the purpose of purchase, construction, repair, renewal or reconstruction of property
Losses from house property incurred in the current year can be set off against income under any other head of income. If losses from house property in the current year cannot be wholly set off, such losses may be carried forward for eight years. However, the losses carried forward can be set off against income from house property only.
Capital gains and losses
Capital gains on assets other than shares and securities. Capital gains derived from the transfer of short-term assets are taxed at normal rates.
The sales proceeds from a depreciable asset must be applied to reduce the declining-balance value of the class of assets (including additions during the year) to which the asset belongs. If the sales proceeds exceed the declining-balance value of a relevant class of assets, the excess is treated as a short-term capital gain and is taxed at the normal tax rates.
Long-term capital gains are gains on assets that have been held for more than three years. Long-term capital gains are exempt from tax in certain cases, subject to certain limits, if the gains are reinvested within a prescribed time period. If, within three years after purchase, the new assets are sold or, in certain cases, used as a security for a loan or an advance, the capital gains derived from the sale of the original asset are subject to tax in the year the new assets are sold or used as a security.
Capital gains on shares and securities listed on a stock exchange in India. Long-term capital gains (gains derived from listed securities held longer than one year) derived from the transfer of equity shares or units of an equity-oriented fund listed on a recognized stock exchange in India are exempt from tax if Securities Transaction Tax (STT) is paid on such transaction.
Short-term capital gains derived from the transfer of equity shares or units of equity-oriented funds on a recognized stock exchange in India are taxable at a reduced rate of 15% (plus cess) if STT is chargeable on such transaction.
Inflation adjustments. In calculating long-term capital gains, the cost of assets may be adjusted for inflation. For assets held on or before 1 April 1981, the market value on 1 April 1981 may be substituted for cost in calculating gains. However, this adjustment is not available in the following cases:
- Transfer of shares of an Indian company acquired with foreign currency by nonresidents
- Transfer of bonds or debentures by residents or nonresidents, regardless of the currency with which the acquisition is made
Capital gains on unlisted shares and securities in India. Longterm capital gains (from shares not listed on any stock exchange in India, including shares of a foreign company listed on stock exchange outside India, and other specified securities held longer than three years) are taxable at a rate of 20% (plus surcharge and education cess) after inflation adjustments. For nonresidents, the gains are taxable at a reduced rate of 10% (plus surcharge and education cess) without inflation adjustments.
Short-term capital gains derived from the transfer of the above shares and securities are taxed at the normal progressive rates (see Rates).
Setting off capital losses. Short-term and long-term capital losses may not offset other income. Short-term capital losses arising during the tax year can be set off against short-term capital gains or long-term capital gains. The balance of short-term losses may be carried forward to the following eight tax years and offset short-term or long-term capital gains arising in those years.
Long-term capital losses arising during the tax year can be set off only against long-term capital gains and not against any other income. The balance of long-term losses may be carried forward to the following eight tax years and offset long-term capital gains arising in those years. To claim a carryforward and the set-off of losses, the tax return must be filed within the prescribed time limits.
Capital gains on foreign-exchange assets. Nonresident Indian nationals may be subject to a 10% withholding tax on long-term capital gains on specified foreign-exchange assets.
Nonresidents are protected from fluctuations in the value of the Indian rupee on sales of shares or debentures of an Indian company because the capital gains are computed in the currency used to acquire the shares or debentures. After being computed, the capital gains are converted into Indian rupees. Inflation adjustments are not permitted for this computation.
Taxation of Long Term Incentive Plans. Income arising from Long Term Incentive Plans (LTIPs) is taxed as salary income in the hands of the employees. The value of the long term incentive (LTI) for tax purposes is the fair market value (FMV) as of the date on which the LTI is exercised by the employee, reduced by the amount of the exercise price paid by the employee. For this purpose, the FMV is the value determined in accordance with the method prescribed under the Income Tax Act, 1961.
In calculating the capital gains arising at the time of sale of shares acquired under schemes referred to in the preceding paragraph, the acquisition cost is the FMV as of the date of exercise that was taken into account to determine the taxable income at the time of allotment of shares.
The Indian government has prescribed the valuation rules to determine the FMV. These rules are summarized below.
Valuation of shares listed on a recognized stock exchange in India. If the shares of a company are listed on a recognized stock exchange in India on the date of exercise of the LTI, the FMV is the average of the opening price and the closing price of the shares on the stock exchange on that date. However, if the shares are listed on more than one recognized stock exchange, the FMV is the average of the opening and closing price of the shares on the recognized stock exchange that records the highest volume of trading in the shares.
If no trading in the shares occurs on any recognized stock exchange on the exercise date, the FMV is the closing price on the closest date preceding the date of exercise of the LTI.
Valuation of unlisted shares or shares listed only on overseas stock exchanges. If, on the date of exercise of the LTI, the shares in the company are not listed on a recognized stock exchange in India, the FMV of the share must be determined by a recognized merchant banker.
The FMV can be determined on the date of exercise of the LTI or any date that falls within 180 days before the exercise date.
Deductions. For individuals, a deduction of up to INR150,000 from gross total income may be claimed for prescribed contributions to life insurance, savings instruments and pension funds, such as the New Pension Scheme (NPS).
An additional deduction of INR50,000 is allowed for contributions made by taxpayers to the NPS, effective from 1 April 2015.
A deduction for contributions made by employers of taxpayers to the NPS is also allowed up to a specified limit. Effective from 1 April 2016, a withdrawal from the NPS to the extent of 40% of the accumulated corpus (consists of the contributions made to the NPS account and the accretions to such amounts) is not taxable and the balance is also not taxable if it is invested in annuities. In addition, a one-time tax exemption is provided for the transfer of an accumulated balance from the Employees’ Provident Fund (EPF; see Section C) to the NPS.
Interest paid on loans obtained for pursuing higher education is fully deductible. However, no deduction is available for repayment of the principal amount. Effective from 1 April 2016, taxpayers are also eligible to claim an additional deduction of INR50,000 for interest paid on loans obtained for residential property, subject to certain conditions.
A deduction of up to INR10,000 may be claimed by individuals with respect to interest on deposits in a savings account with a banking company, specified co-operative society or post office.
Medical insurance premiums for recognized policies in India may be deducted, up to a maximum of INR25,000 (INR30,000 if the insured is a resident of India and is age 60 or older) against aggregate income from all sources. An additional deduction up to a maximum of INR25,000 is allowed to an individual for medical insurance premiums paid by the individual for his or her parents (INR30,000 if the insured is a resident of India and is age 60 or older). The above limit applies to the total amount paid for both parents. Payments up to INR5,000 made for a preventive health checkup is also eligible for deduction within the above limit. “Very senior citizens” (individuals of age 80 or above) are also eligible for a deduction to the extent of INR30,000 on medical expenditure incurred by them if they do not have insurance coverage.
Donations to religious, charitable and other specified funds are eligible for deductions from taxable income of up to 50% or 100%, as prescribed. Donations exceeding INR10,000 paid in cash are not eligible for deduction.
For resident individuals who earn annual income of less than INR1,200,000 and who are new retail investors, a deduction of 50% of the amount invested in listed equity shares or in listed units of equity-oriented funds as notified by the central government is allowed. However, such deduction cannot exceed INR25,000 and is subject to certain other conditions.
Rates. The following tax rates apply to resident and nonresident individual taxpayers for the 2016-17 tax year.
|Cumulative tax due
Individuals with income up to INR250,000 do not pay the income tax and education cess. The exemption limit is INR300,000 for resident senior citizens age 60 to 80 at any time during the financial year. For resident and very senior citizens (defined as individuals above the age of 80), the exemption limit is INR500,000.
A surcharge applies to individuals with total taxable income exceeding INR10 million. This surcharge equals 15% of the total tax payable. Marginal relief is allowed to ensure that the additional amount of income tax payable, including surcharge, on the excess of income over INR10 million is limited to the amount by which the income is more than INR10 million.
An education cess of 3% is levied on the tax payable and surcharge.
The following are the maximum marginal tax rates:
- If total annual income is INR10 million or less, the maximum marginal tax rate is effectively 30.9% (30% + 3% education cess).
- If total annual income is more than INR10 million, the maximum marginal tax rate is effectively 35.535% (30% + 15% surcharge + 3% education cess).
The following table shows the effective tax rates.
|Cumulative tax due
Individuals with total taxable income up to INR500,000 are allowed a tax rebate equal to the total amount of tax payable or INR5,000, whichever is less.
Special rates for nonresidents. For nonresident taxpayers, the tax rate for income from royalties and fees for technical services is 10%.
Nonresident Indian nationals (including persons of Indian origin) may exercise an option to be taxed at a flat rate of 20% on gross investment income (without any deductions) arising from foreign-currency assets acquired in India through remittances in convertible foreign exchange.
Net wealth tax. Wealth tax was abolished, effective from 1 April 2015.
Estate and gift taxes. India does not impose tax on estates, inheritances or gifts. However, as mentioned in Transactions above INR50,000 in Section A, any sum of money received by an individual in excess of INR50,000 without consideration is taxable in the hands of the recipient.
Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. In 2015, the Indian government enacted the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (Black Money Act) to tax undisclosed foreign income and assets (UFIA) held outside India by individuals who qualify as resident and ordinary resident. An individual who has UFIA is taxed at a rate of 30% with a penalty of 300% of the tax. In addition, imprisonment of up to 10 years is possible.
If income from any foreign source is not reported on the taxpayer’s income tax return, or if a failure to file an income tax return declaring such income occurs, the overseas income is considered to be undisclosed income. Overseas assets include assets, such as financial interests in entities, movable and immovable assets and bank accounts), held directly or beneficially by the taxpayer. The asset is deemed to be undisclosed if the taxpayer is unable to satisfactorily explain the source of investment.
Taxpayers who are ordinarily resident in India have additional disclosure requirements with respect to foreign assets held by them. Failure to comply with such disclosure requirements results in a penalty of INR1 million in addition to tax and a penalty under the Black Money Act.
Social security in India is governed by the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 (EPF Act). The EPF Act contains the following three principal schemes:
- Employees’ Provident Fund Scheme, 1952
- Employees’ Pension Scheme, 1995
- Employees’ Deposit-Linked Insurance, 1976
Coverage. The EPF Act applies to the following establishments:
- An establishment employing 20 or more persons engaged in a specified industry or an establishment or class of establishments notified by the central government
- An establishment employing less than 20 persons that opts voluntarily to be covered by the EPF Act
Covered employers must make a contribution toward the Provident Fund and Pension Scheme for their employees who are International Workers. Under the EPF Act, the following employees are considered to be International Workers:
- An Indian employee (an Indian passport holder) who has worked or is going to work in a foreign country with which India has entered into a social security agreement and who is or will be eligible to receive benefits under a social security program of that country, in accordance with such agreement
- A foreign national who works for an establishment in India to which the EPF Act applies
An “excluded employee” is not covered by the EPF Act. An employee is considered to be an “excluded employee” if the following conditions are satisfied:
- The employee is an International Worker who is contributing to a social security program of his or her country of origin, either as citizen or resident.
- The employee’s home country has entered into a social security agreement with India on a reciprocity basis and the employee is considered to be a detached worker under the social security agreement.
Social security agreements. India has entered into social security agreements with Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Hungary, Korea (South), Luxembourg, the Netherlands, Norway, Sweden and Switzerland. It has also signed social security agreements with Japan, Portugal and Quebec, but these agreements have not yet entered into force. India has not entered into a social security agreement with Singapore. However, benefits under a social security agreement are sought to be provided through a Comprehensive Economic Cooperation Agreement (CECA) between India and Singapore.
Contributions. Every covered employer is required to contribute 24% (12% each for the employer’s and the employee’s share) of the employee’s “monthly pay” (as defined) toward the Provident Fund and Pension Fund. The employer has the option to recover the employee’s share from the employee.
For employees (including International Workers) who become members on or after 1 September 2014 and draw monthly salary exceeding INR15,000, the entire contribution is allocated to the Employees’ Provident Fund.
For employees who are existing members as of 1 September 2014, out of the employer’s 12% share of the contribution, 8.33% of monthly pay is allocated to the Employees’ Pension Fund. The balance of the contributions is deposited into the Employees’ Provident Fund.
Local employees who draw a monthly salary of INR15,000 or more are excluded from the legislation, but this exclusion does not apply to International Workers. Consequently, contributions are required for International Workers even if the monthly pay of the employee exceeds INR15,000.
The employer contributions are exempt from tax up to 12% of monthly pay.
Withdrawal. An International Worker can make a withdrawal from the Provident Fund only in the following circumstances:
- He or she retires or reaches the age of 58, whichever is later.
- He or she suffers permanent and total incapacitation.
However, in the case of an International Worker covered under a social security agreement entered into between India and the home country, the following rules apply to withdrawals by individuals from the Provident Fund:
- Individuals may withdraw their contributions (and interest) from the Provident Fund on ceasing to be an employee in an establishment covered by the EPF Act.
- The amount due to the individual with respect to his or her Provident Fund contributions is payable to the individual’s bank account either directly or through the employer.
For International Workers covered under a social security agreement that contains provisions relating to “totalization of period,” the period of coverage in India and the period of coverage under the relevant social security scheme of the other country are aggregated to determine eligibility for pension benefits.
Tax filing and payment procedures
Income tax filing and payment. All income is taxed using a tax year from 1 April to 31 March. All taxpayers, including nonresidents, must file returns if their taxable income exceeds the exempt amount. Resident and ordinarily resident individuals who have an asset (including a financial interest in an entity) located outside India, signing authority in an account outside India or income from any source outside India must file a return even if they do not have any taxable income.
Income tax returns for salary income must be filed by 31 July; returns for self-employment or business income must also be filed by 31 July or, if the accounts are subject to a tax audit, by 30 September.
Tax returns must be filed electronically by taxpayers who have taxable income exceeding INR500,000 or who are claiming a foreign tax credit or a tax refund on their Indian tax return.
Taxpayers who have filed their tax returns after the due date are now eligible to revise such returns at any time within two years after the end of the tax year or before completion of a tax audit by the tax authorities.
Taxpayers who are ordinarily resident in India and have additional disclosure requirements relating to foreign assets held by them for the purpose of investment are also required to file their returns electronically.
India does not have a concept of joint filing. As a result, married persons are taxed separately. If an individual directly or indirectly transfers an asset to his or her spouse for inadequate consideration, income derived from the transferee’s asset is deemed to be the income of the transferor spouse. If an individual has a substantial interest in a business, remuneration paid by the business to the individual’s spouse is taxed to the individual, unless the remuneration is attributable solely to the application of the spouse’s technical or professional knowledge and experience. Passive income of minor children is aggregated with the income of the parent with the higher income.
Taxpayers with employment income pay tax through tax withheld by employers from monthly salaries each pay period. Taxpayers with tax liability exceeding INR10,000 must make advance payments, after deducting credit for tax withheld, in four installments on 15 June, 15 September, 15 December and 15 March.
Taxpayers are required to quote their Permanent Account Number (PAN), which is the tax identification number, in all correspondence with the Indian Revenue. The PAN is now mandatory. All individuals who are required to file an income tax return are required to obtain a PAN. In addition, the quoting of the PAN is now mandatory for every financial transaction above INR200,000.
The law prescribes a tax withholding at the higher of the prescribed rate or 20% if the taxpayer’s PAN is not available. However, effective from 1 June 2016, nonresident taxpayers are exempt from furnishing the PAN if a specified alternative document is submitted.
Nonresidents are subject to the same filing requirements as residents. However, nonresident citizens (including persons of Indian origin) who have only investment income or long-term capital gains on foreign-exchange assets need not file returns if the required tax is withheld at source. Nonresidents are subject to assessment procedures in the same manner as residents.
For taxpayers whose total income exceeds INR5 million, an additional disclosure of immovable property (land and buildings) and movable assets (for example, cash in hand, jewelry, bullion, vehicles, boats and yachts) must be made. The taxpayer must also provide the liabilities (if any) with respect to the reported assets.
Exit tax clearance. Before leaving the country, any individual not domiciled in India is required to furnish an undertaking to the prescribed authority and obtain a No Objection Certificate if he or she is in India for business, professional or employment activities and has derived income from any source in India. Such undertaking must be obtained from the individual’s employer or the payer of the income, and the undertaking must state that the employer or the payer of income will pay the tax payable by the individual. An exemption from obtaining the No Objection Certificate is granted to foreign tourists or individuals visiting India for purposes other than business or employment, regardless of the number of days spent by them in India. At the time of departure of an individual domiciled in India, the individual must provide his or her permanent account number, the purpose of the visit outside India and the estimated time period for the stay outside India to the prescribed authority. However, a person domiciled in India may also be required to obtain a No Objection Certificate in certain specified circumstances.
Quarterly statement of tax withheld at source. Entities must file quarterly statements of tax withheld in a prescribed format with the prescribed authority.
Double tax relief and tax treaties
Tax treaties provide varying relief for tax on income derived from personal services in specified circumstances. In certain circumstances, the treaties also provide tax relief for business income if no permanent establishment exists in India. India has entered into comprehensive double tax treaties with the following countries.
Albania Italy Romania
Armenia Japan Russian Federation
Australia Jordan Saudi Arabia
Austria Kazakhstan Serbia
Bangladesh Kenya Singapore
Belarus Korea (South) Slovenia
Belgium Kuwait South Africa
Bhutan Kyrgyzstan Spain
Botswana Latvia Sri Lanka
Brazil Libya Sudan
Bulgaria Lithuania Sweden
Canada Luxembourg Switzerland
China Macedonia Syria
Colombia Malaysia Tajikistan
Croatia Malta Tanzania
Cyprus Mauritius Thailand
Czech Republic Mexico Trinidad
Denmark Mongolia and Tobago
Egypt Montenegro Turkey
Estonia Morocco Turkmenistan
Ethiopia Mozambique Uganda
Fiji Myanmar Ukraine
Finland Namibia United Arab
France Nepal Emirates
Georgia Netherlands United
Germany New Zealand Kingdom
Greece Norway United States
Hungary Oman Uruguay
Iceland Philippines Uzbekistan
Indonesia Poland Vietnam
Ireland Portugal Zambia
India has entered into limited double tax treaties with Afghanistan, Ethiopia, Iran, Lebanon, Maldives, Pakistan, Yemen and the South Asian Association for Regional Cooperation (SAARC) countries.
If no double tax treaty applies, resident taxpayers may claim a tax credit on foreign-source income equal to the lower of the tax imposed by the foreign country or the tax imposed by India on the foreign income.
An individual not resident in India who claims exemptions and reliefs from tax under double tax treaties may claim relief under such agreements only if he or she obtains a tax-residency certificate indicating that he or she is a resident of the relevant country or territory outside India from the government of that country or territory and if a specified form is filed in India.
Visas and other formalities
Business visa and employment visa. The visa guidelines restrict the nature of activities for which a business visa or employment visa can be issued. Under the guidelines, foreign nationals coming to India for the purpose of executing projects and contracts in India do not fulfill the conditions for the granting of a business visa. Consequently, a business visa is not granted to such foreign nationals. Instead, foreign nationals coming to India for the purposes of executing projects or contracts must obtain an employment visa.
The employment visa may be granted to the following individuals only:
- Skilled or qualified professionals
- Foreign nationals visiting India for employment in companies in India or in foreign companies executing projects in India
An employment visa may not be issued if a large number of qualified Indians are already available to fill the position or if the job is an ordinary secretarial or clerical job.
An employment visa is granted to a foreign national if his or her salary exceeds USD25,000 per year. However, the salary threshold of USD25,000 (this limit includes all cash payments and perquisites that are taxed in India) does not apply to certain individuals—ethnic cooks, language teachers (other than English teachers), translators and staff—working for an embassy or high commission in India.
Employment visas may be issued to foreign nationals visiting India for the purpose of carrying out the following activities:
- Execution of projects or contracts, regardless of duration
- Installation and commissioning of machinery with respect to a contract for supply
- Transfer of know-how for which an Indian company pays fees or royalties
- Consulting on a contract basis for an Indian company that pays fixed remuneration
- Taking up employment as a coach of a national- or state-level team or reputed sports club
- Performing as a foreign sportsperson for a specific period under contract with an Indian club or organization
- Providing engineering, medical, accounting, legal and other highly skilled services in the capacity of an independent consultant
- Serving as a foreign language teacher or interpreter
- Serving as a foreign specialist chef
No change of employer in India is permitted during the duration of the employment visa except from a registered holding company to its subsidiary or vice versa, or between subsidiaries of a registered holding company.
A business visa is granted under specified conditions that include the assurance of the financial standing of the applicant, as well as his or her expertise in the field of the business in question. The guidelines provide that a business visa may be issued to a foreign national visiting India for the purpose of carrying out the following activities:
- Establishing a business venture
- Exploring the possibility of an industrial or business venture in India
- Purchase and sale of industrial, commercial or consumer products
- Attending technical meetings or discussions
- Attending board meetings and general meetings
- Recruitment of manpower
- Functioning as partners or directors in a business
- Consultation or participation with respect to exhibitions, trade fairs or business fairs
- Meeting with suppliers or potential suppliers to evaluate or monitor quality, negotiate supplies, place orders and provide specifications for goods procured from India
- Monitoring progress on ongoing projects
- Meeting with Indian customers on ongoing projects
- Meeting to provide high-level technical guidance on ongoing projects
- Activity before and after a sale that does not amount to the execution of a contract
- In-house training at the regional hubs of a foreign company
- Foreign students sponsored by the AIESEC who are serving as interns on project-based work in companies and industries
- Serving as a tour conductor or travel agent
The business visa and employment visa may be issued only by the Indian Missions from the country of origin or from the country of domicile of the foreign national, provided that the period of permanent residence of the foreign national in such country is at least two years.
Accompanied legal spouses and dependents can come to India with an X visa. India does not recognize “common law” partners. Under the guidelines, the visa of the spouse of an employee on an intracompany transfer may be converted from an X visa to an employment visa, subject to specified conditions.
When applying for an employment visa, the intended legal entity and the location of work in India must be clearly specified because the mandatory registration at the Foreigners Regional Registration Office (FRRO) after arrival in India is based on the place of work as endorsed on the visa.
Tourist visa. Visitors to India need visas to enter the country unless they are Indian citizens. Under a bilateral arrangement, a 10-year tourist visa is available to US citizens only. Nonresident Indians holding citizenship in another country also must obtain visas before arriving in India unless they hold a Person of Indian Origin (PIO) card (see Section I) issued by the Indian government. A visa must be obtained from the Indian embassy or consulate in the applicant’s home country. Nationals of Bhutan and Nepal do not need a visa to enter India, and nationals of Maldives do not require a visa for entry into India for a period up to 90 days.
e-Tourist Visa. An e-Tourist Visa is available for citizens of 150 countries. An individual needs to apply for it online at least four days before the date of arrival in India. It is granted for a maximum validity of 30 days and allows a single entry. The e-Tourist Visa is valid only for entry through 16 designated international airports in India.
Visa on arrival. A visa on arrival is available from 1 March 2016 for a duration not exceeding 30 days for Japanese nationals visiting India as tourists, business visitors, conference attendees and medical visitors. The visa on arrival facility is in addition to the existing e-Tourist Visa facility for Japanese nationals.
Diplomatic and official passport holders. A separate visa regime exists for diplomatic and official passport holders.
Temporary Landing Facility/Temporary Landing Permit. A Temporary Landing Facility (TLF)/Temporary Landing Permit (TLP) allows the entry of foreigners arriving in emergency situations, such as death or serious illness in the family, without an Indian visa on the payment of a specified amount. This facility can also be extended to transiting foreigners who have confirmed onward journey tickets within 72 hours. In addition, foreign tourists in groups of four or more arriving by air or sea who are sponsored by recognized Indian travel agencies and have a preset itinerary can be granted a collective landing permit for a specified time period on the written request of the travel agencies to the immigration officer. This written request must provide the full personal and passport details of the group members, contain an undertaking to conduct the group in accordance with the itinerary and assure that no individual will be allowed to drop out from the group in any location in India. The above mentioned measures with respect to TLF/TLP are not available to the nationals of Afghanistan, Bangladesh, China, Ethiopia, Iran, Iraq, Nigeria, Pakistan, Somalia and Sri Lanka.
Conference visa. The conference visa, has been introduced. This visa is issued to foreign nationals visiting India to attend a conference if the individual meets all of the following conditions:
- He or she holds a valid passport and re-entry permit under the laws of his or her home country.
- He or she is not a persona non grata or the subject of a negative list, warning circular or other restrictive list.
- He or she is of assured financial standing.
The conference visa is issued for the duration of the conference and the traveling time.
Journalist visa. A journalist visa is issued to professional journalists and photographers. Persons intending to make a documentary in India may contact the Press and Information wing of an embassy or consulate-general of India.
Other visas. Other types of visas issued in India include the student visa, yoga visa, research visa and missionary visa.
All foreign nationals must register with the police authorities (Foreigners Registration Office [FRO] and/or FRRO) at the local registration office within two weeks after their date of arrival if their employment visas are valid for longer than six months or if the visa stamp specifically requires this registration. Prescribed documentation must be presented to register with the local registration office. The documentation may vary based on location of the local registration office.
The original passport and visa are also required at the time of filing for verification by authorities.
Registration is generally valid for the term of the visa or for one year, whichever is less, and may be extended on application.
Failure to register may result in the immigration authorities’ refusal to allow the foreign national to leave the country.
Formalities to be observed by registered foreigners. A registered foreigner is issued a registration certificate containing his or her latest photograph, details of residence and certain other information. A foreigner must notify the registration authorities regarding any permanent change in his or her address. A foreigner also must inform the registration officer if he or she proposes to be absent from his registered address for a continuous period of eight weeks or more. Similarly, a foreigner, who stays for a period of more than eight weeks in a district other than the district of his or her registered address, must inform the registration officer of that district of his or her presence.
Family and personal considerations
Family members. Entry visas (X-visas) are issued to accompanying family members of individuals visiting India on business or for employment.
Spouses or dependents of working expatriates must obtain separate work permits to be employed in India.
Family members intending to reside with a working expatriate must register separately at the local registration office (see Section G).
Driver’s permits. Foreign nationals are not permitted to drive in India using their home country driver’s licenses. Foreign nationals should obtain international driver’s licenses in their home countries. International driver’s licenses are valid for a period of one year from the date of issuance or until the domestic license becomes valid, whichever is earlier.
To obtain an Indian driver’s license, individuals should apply to the Regional Transport Authority, which issues learner’s permits. This enables the individual to drive when accompanied by an adult who has a valid Indian driver’s license. One month after the learner’s permit is issued, a driving test and a verbal examination of the local driving laws must be taken. On successful completion of the examinations, the Regional Transport Authority issues a driver’s license.
Exchange controls. Under the prevailing foreign-exchange rules, the following individuals are permitted to remit their salaries (net of retirement plan contributions and Indian taxes) to their home countries for maintenance of close relatives abroad:
- Foreign nationals who are residents but not permanently resident in India and who are regularly employed with Indian firms or companies and receive a monthly salary
- Indian nationals on deputation to an office, branch, subsidiary or joint venture in India of an overseas company
The definition of residential status of individuals under the exchange control law differs from the definition under the Income Tax Act, 1961.
A foreign national, who is an employee of a company incorporated in India, may open an Indian bank account, receive salary in an Indian bank account and remit the salary received in India to a foreign bank account maintained by him or her overseas, if statutory dues are paid on the entire salary in India.
A special rule applies to an expatriate employee (whether a foreign national or an Indian citizen) who is employed by a foreign company outside India and is deputed to an office, branch, subsidiary, joint venture of such foreign company or to a company in the foreign company’s group. Such an expatriate employee may receive salary in the foreign bank account outside India, if statutory dues are paid on the entire salary accrued in India. However, if an expatriate employee referred to above is deputed to work in India in an entity that is not related to the foreign employer, specific Reserve Bank of India approval for payment of salary outside India may be required.
India regulates the acquisition, holding, transferring, borrowing, or lending of foreign exchange, and the acquisition of foreign security or immovable property located outside India by persons resident in India. However, a person resident in India may hold, own, transfer or invest in foreign currency, foreign security or an immovable property located outside India if the person acquired, held or owned such currency, security, or property when he or she was resident outside India or such person inherited the currency, security or property from a person who was resident outside India.
Under a liberalized remittance scheme for resident individuals, total remittances of up to USD250,000 per individual per financial year are allowed for permissible current-account transactions and permissible capital-account transactions, subject to certain exceptions. The scheme allows individuals to acquire and hold shares and immovable property and maintain foreign-currency accounts or other assets outside India without Reserve Bank of India approval, subject to the fulfillment of specified conditions.
Person of Indian Origin card. Until 8 January 2015, a Person of Indian Origin (PIO) card could be obtained by any individual who was in possession of the passport of any other country except for Afghanistan, Bangladesh, Bhutan, China, Nepal, Pakistan, Sri Lanka or any other country specified by the government, subject to satisfaction of certain conditions. Effective from 9 January 2015, this scheme was closed and existing PIO cardholders are deemed to be Overseas Citizenship of India (OCI; see Overseas Citizens of India) cardholders and are eligible for the same benefits as OCI cardholders. An online service is available until 31 December 2016 for existing PIO cardholders to obtain their new OCI card.
Conversion process. The conversion application can be filed online (http://passport.gov.in/oci/). All of the supporting documents, photographs and signatures must be uploaded via the online system. For minors who cannot sign, a thumb impression can be uploaded in place of a signature.
Following submission of the online application, a copy of the application pack with all uploaded documents must be submitted to the Indian mission or consular post outside India or the FRRO in India. The originals of all supporting documents must also be physically verified with an Indian mission, consular post or the FRRO.
Overseas Citizens of India. In December 2003, the Indian parliament passed a bill to allow persons of Indian origin who are also citizens of one of the listed countries (16 countries have been listed including the United Kingdom and the United States) to acquire Overseas Citizenship of India (OCI; known as dual citizenship) without surrendering the citizenship of the other country. The benefit of dual citizenship was extended to a person who was eligible to become a citizen of India on 26 January 1950, who was a citizen of India on or any time after 26 January 1950 or who belonged to a territory that became part of India after 15 August 1947, and to his or her children and grandchildren. To qualify for dual citizenship, the following additional conditions need to be satisfied:
- The person has acquired the citizenship of a foreign country other than Bangladesh and Pakistan.
- The country of nationality allows dual citizenship in some form under the local law.
Overseas Citizens of India are granted certain additional benefits such as the following:
- Multiple entry, multi-purpose and life-long visa to visit India
- Exemption from reporting to the police authorities for any length of stay in India
A person registered as an OCI is eligible to apply for the grant of an Indian citizenship if he or she has been registered as an OCI for five years and resided in India for one out of the five years before making the application.
Restricted areas. Advance permission is required from Indian diplomatic missions abroad or from the Ministry of Home Affairs (MHA) in New Delhi, to visit the states of Arunachal Pradesh, Manipur, Mizoram, Nagaland, Sikkim, parts of Kulu district and Spiti district of Himachal Pradesh, border areas of Jammu and Kashmir, some areas of Uttaranchal, the area west of National Highway No. 15 running from Ganganagar to Sanchor in Rajasthan, the Andaman and Nicobar Islands, and the Union Territory of the Laccadives Islands (Lakshadweep). US citizens who visit the Tibetan Colony in Mundgod, Karnataka must obtain a permit from the MHA before visiting.
Personal baggage rules. An expatriate may import into India bona fide baggage (explained in the Customs Act), which includes personal and household effects (except certain specified items, such as alcoholic liquor and wines in excess of two liters) and jewelry up to specified limits, free of customs duty. This is permitted on a bona fide transfer of residence, subject to the satisfaction of certain specified conditions.