Income Tax Filing for Foreign Nationals
Who is a foreign national or an expatriate?
An expatriate is an individual who comes to live in India but not a citizen of India.
Whether an expatriate is liable to pay tax in India?
Yes, an expatriate is liable to pay tax in India even though he is a citizen of a foreign country. Any income earned by an expatriate by working in India or providing services in India will be taxable in India regardless of his or her residential status or foreign national citizenships. If your total income in India is less than the limit specified by the income tax department i.e. Rs. 250000, you will be exempted from tax and may eligible for refund while filing income tax return in India.
How an expatriate income taxed if he or she is an Indian resident?
Taxability of an individual income depends upon his or her residential status. If you are an Indian resident, you need to pay tax in India on entire income earned by you anywhere across the globe.
In case if expatriate is having a residential status of NRI or a resident but not ordinarily resident (RNOR), the income earned in India will be taxable in India only.
The first step for every individual is to identify his or her residential status. As per the rules specified in the income tax act, 1961 for the residential status, expatriate enjoys RNOR status for the first 2 years after arriving in India & only pay tax on the income earned by him in India.
Whether a foreign national take benefit of DTAA or not?
Double taxation avoidance agreement (DTAA) is an agreement between the two countries to avoid paying double tax on the same income.
In case you are earning income in a foreign country and paying tax there and on the same income, you are bound to pay tax in India too, you can take the benefit of DTAA with the help of a CA.
For Example –
Ekaterina is a foreign national working as a teacher for an international school in Delhi from last 1 year. She is a resident of United Kingdom and receiving 1000 pounds per month as a salary for her work at school in India. Whether Amanda will be taxed in India for the salary she is earning in India or not?
Ekaterina is receiving 12000 pounds as a salary from her teaching work and she has to pay Indian tax as she is earning in India. School is deducting Rs. 400000 TDS from her income. As per income tax act, 1961, Ekaterina is an NRI and every NRI needs to pay his or her tax on the income earned in India.
Ekaterina paid Rs. 400000 as TDS to the income tax department as a final tax liability. In case, the same amount is taxable in UK, you can take the benefit of double taxation avoidance agreement (DTAA) and avoid paying taxes in both the countries.