Expatriates taking up employment in India will be subject to Income-tax, social security, and immigration related regulations. The experts of Grant Thornton in India can help expatriates and their employers to deal with tax matters as well as social security and immigration related issues including:
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Foreign nationals coming to India are required to obtain relevant visa depending upon the nature of activities they are going to undertake in India. Broadly, there are three types of visa which are generally applied for by a foreigner coming to India for business or employment purposes ie, i) Employment visa, ii) Business visa & iii) Project visa.
Generally, the validity of employment visa is one year. Extension can be obtained from Ministry of Home affairs (MHA) or Foreigners Regional Registration Officer (FRRO) of the relevant State government.
Registration with FRRO: All foreigners visiting India for more than 180 days are required to get themselves registered with the FRRO concerned having jurisdiction over the place where the foreigner intends to stay, within 14 days of arrival and this is applicable for all categories of visa.
However, registration is also required in the case of visa for period less than 180 days if there is a special endorsement on the visa to the effect “FRRO registration required”. No registration is required in respect of children below the age of 12 years.
Any change in information given for obtaining FRRO registration should be informed to FRRO in a timely manner.
e-FRRO services are applicable in 13 States which provides a centralized online platform for foreigners for visa related services. In such States, there is no requirement of taking appointment and in-person visit to an FRRO office unless specifically called upon by the FRRO.
The tax year in India is referred to as the ‘Financial Year’ (FY) and is different from the calendar year. The financial year runs from 1 April to 31 March of the next calendar.
An individual who meets the income threshold or other specified criteria is required to file a tax return in India. Tax returns for individual taxpayers are due by 31 July (30 September / 31 October in certain cases requiring audits) following the end of relevant financial year. Electronic filing of tax returns is mandatory except in few specified cases.
Individuals must pay 100% of the final tax due by the end of financial year, either via withholding at source or by quarterly advance tax payments (with interest payable on underpayments). Employer is responsible to withhold taxes from employment related income paid to its employees.
Further, for payment of taxes in India and filing tax return, an individual should mandatorily have a Permanent Account Number (PAN) in India.
With effect from Financial Year 2020-21, an optional tax regime i.e., New Tax Regime has been introduced for individual taxpayers, wherein reduced tax rates may be opted for by foregoing specified deductions and exemptions. Starting from the Financial Year 2023-24, the new tax regime has been made the default tax regime for individual taxpayers. However, taxpayers still have the option to choose the old tax regime if they prefer.
The personal tax rates for the Financial Year 2025-26 under the new tax regime are as follows:
Income slab (INR) Rate of tax
Up to 4,00,000 NIL
4,00,001 - 8,00,000 5%
8,00,001 - 12,00,000 10%
12,00,001 - 16,00,000 15%
16,00,001 - 20,00,000 20%
20,00,001 - 24,00,000 25%
Above 24,00,000 30%
Further, a tax rebate of up to INR 60,000 is offered to resident individuals earning an income of up to INR 12,00,000.
The amount of income-tax shall be increased by a surcharge on tax at the following rates:
Income slab (INR) New Tax Regime
INR 50 lakh - INR 1 crore 10%
INR 1 crore - INR 2 crore 15%
Above INR 2 crore 25%
he personal tax rates for the Financial Year 2025-26 under the Old tax regime are as follows:
Income slab (INR) Rate of tax
Up to INR 2,50,000 NIL
INR 2,50,001 - INR 5,00,000 5%
INR 5,00,001 - INR 10,00,000 20%
Above INR 10,00,00 30%
*Minimum exemption limit for Indian citizens of age 60 years and above but less than 80 years is INR 300,000 and for very senior citizens aged 80 years and above is INR 500,000.
Further, a tax rebate of up to INR 12,500 is offered to resident individuals earning an income of up to INR 5,00,000.
The amount of income-tax shall be increased by a surcharge on tax at the following rates:
Income slab (INR) Old Tax Regime
INR 50 lakh - INR 1 crore 10%
INR 1 crore - INR 2 crore 15%
INR 2 crore - INR 5 crore 25%
Above INR 5 crore 37%
The amount of income-tax and the applicable surcharge shall be further increased by Education and Secondary Higher Education Cess @ 4%.
In addition to the above, the individuals would receive INR 50,000 / 75,000 as Standard deduction under Old / New tax regime respectively.
An individual is considered tax resident in India if he/she meets one of the following basic rules for stay in India:
However, for an Indian citizen who leaves India for specified purposes, the above criteria of 60 days is replaced by 182 days. Further, for an Indian citizen or person of Indian origin who visits India, such criteria of 60 days will be read as 120 days or as 182 days based on certain criteria.
A resident Individual is further classified as ‘ordinarily resident’ or ‘not ordinarily resident’ depending upon the Indian residential status of such individual in past seven ten financial years. Further an individual who does not fulfil any of the above basic conditions is regarded as Non-Resident in India.
W.e.f. FY 2020-21, the concept of deemed tax residency has been introduced for Indian citizens. Indian citizens not liable to tax in any other country by virtue of residency, domicile or any other similar criteria would be deemed tax residents of India.
An individual who is ‘resident and ordinarily resident’ in India is liable to tax on his /her global income earned, subject to the provisions of relevant tax treaty. A person who is ‘not ordinarily resident’ or ‘non-resident’ is liable to tax on only India source income and on income earned outside India if it is derived from a business or profession controlled or established in India.
In case of a non-resident, income from employment exercised in India is deemed to be India sourced and taxable in India. Relief under applicable tax treaty between India and individual’s country of residence may be applicable in such case.
Income from employment, including most of the employment benefits, is fully taxable in India after considering applicable deductions and exemptions.
Further, for an individual electing the optional tax rate regime (as applicable from FY 2020-21), most of the deductions /exemptions would not be available. Hence, it is required to carefully evaluate both the tax regimes before choosing any tax regime.
Generally, taxability arises in India on rendering of services in India.
An employment contract or a secondment contract issued by any Indian employer and based on valid visa, would be considered as a source of employment in India.
Specified benefits in kind or perquisites are considered as taxable compensation in India subject to limits and conditions.
Remuneration received by a foreign citizen as an employee of a foreign enterprise for services rendered in India may be claimed as exempt if:
Indian tax residents (including not-ordinary residents) who are taxable on global income would be eligible for credit against foreign tax paid on foreign-source income. In general terms the Foreign Tax Credit (FTC) provided in India will be limited to the lesser of the foreign tax paid or the Indian tax applicable to the foreign income.
In case of non-resident, benefit of tax treaty would be applicable subject to filing of tax return in India.
Apart from the deductions /exemptions as available against salary income, certain other deductions may also be claimed by an individual against total income earned based on specified payments /investments. For example, contributions to the Provident fund / Pension fund, payment for medical Insurance / life Insurance premium and investment in other eligible savings schemes, donations, etc., subject to the applicable limits.
However, for an individual opting for optional tax rate regime, most of the deductions /exemptions would not be available.
Employees working in India are subject to tax withholding on the employment income. The employer withholds tax from salary and wages and remits this to the Indian tax authorities as per prescribed timelines.
Expatriates working for an Indian employer would be required to file a tax return to report the employment income.
Every person whose estimated tax liability (after credit for taxes withheld by the employer or other payer) for the year is INR 10,000 or more, shall pay his tax in in the form of ‘advance tax’. However, a resident senior citizen (ie, an individual of the age of 60 years or above during the relevant financial year) not having any income from business or profession is not liable to pay advance tax.
Advance tax is payable during the year in four instalments:
Advance tax Due date
At least 15% of tax on total income for the year 15 June
At least 45% of tax on total income for the year
less advance tax already paid 15 September
At least 75% of tax on total income for the year
less advance tax already paid 15 December
100% of tax on total income for the year less
advance tax already paid 15 March
Capital gain tax arises on transfer of any eligible capital assets. The tax treatment depends upon whether the gains are long term or short term in nature. Gains are long term if the capital asset is held for more than two years (one year in the case of listed shares and specified securities, and two years in the case of unlisted shares and immovable property i.e., land, buildings, or both).
Capital gains tax rates for the Financial Year 2025-26:
Long-term capital gains may be claimed as tax-exempt on investing the sales consideration/capital gain in other eligible assets or securities within the specified period. This is subject to various further conditions.
In India, ESOP granted to employees are taxable at 2 stages i.e. first at the time of exercise of options and second at the time of sale of shares.
At the time of exercise of options, the Fair Market Value (FMV) of the shares as on the date of exercise as reduced by the exercise price paid by the employees is taxable in the hands of employees as ‘salary’ income on which the employer withholds taxes. Tax withholding in case of ESOP for employees of eligible ‘start-ups’ in India may be deferred for 5 years based on specified conditions.
Capital gains at the time of sale of shares shall be taxable in the year of sale of shares.
For expatriates, there is a need to carefully analyse and compute the ESOP taxes due in India as the same depends upon the residential status of the individual, vesting period related to employment exercised in India, date of exercise, etc.
Certain States levy monthly professional tax, the amount of which varies from state to state and also depends on the monthly gross salary.
Investment income arising on sale of investments is generally taxed as capital gains in India.
Further, w.e.f. FY 2020-21, it has been any dividend income earned by a shareholder from an Indian Company would be taxed in individual’s hands as per applicable slab rates.
Municipalities levy property taxes (based on assessed value) and states levy land-revenue taxes.
The inbound expats to India can obtain a Certificate of Coverage in case India has a Social Security Agreement with their home country in place and such expats shall not be required to contribute to Indian social security.
The employee and employer generally contribute 12% of eligible wages per month to the Employee Provident Fund (EPF) account as social security contribution. Contribution to the EPF is mandatory in case of employees whose monthly salary is less than INR 15,000.
As per social security law, there is no wage ceiling on PF contribution for International Workers (ie individual with foreign passport). Employer contribution to EPF in excess of INR 750,000 per annum would be considered a taxable perquisite in the hands of employee. Also, interest earned on employee contribution in excess of INR 250,000 in a financial year would also be taxable. Hence, it is important to carefully evaluate the compensation structure of expat employees so that it is tax and PF efficient /compliant.
There is no wealth tax in India.
Income tax clearance certificate (ITCC)
Expatriate employees are required to undertake departure formalities by obtaining a ‘No Objection Certificate’ (NOC) or an ITCC from the Indian tax authorities at the time of leaving the country.
Remittance of Fund from India
It is important to consider the foreign remittance regulations of India before transferring funds outside India. Under the Liberalised remittance scheme (LRS), an expatriate employee may remit funds up to USD 250,000 in a FY outside India freely without requiring any approval for the specified purposes.
With effect from FY 2020-21, remittances above INR 700,000 under LRS would attract tax at 5% to be collected by the authorised bank.
Akhil Chandna
Email: akhil.chandna@in.gt.com
Rajashree Sarna
Email: rajashree.sarna@in.gt.com
Sarthak Prashar
Email: sarthak.prashar@in.gt.com