Payment of salary to expats in India

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: the enforcement directorate (ED) alleging violation of Fera provisions, and substantial penalties were imposed on various multinational companies and in some cases, on their expatriate employees as well.

The Appellate Tribunal for Foreign Exchange (ATFE) has recently adjudicated the above issue and while confirming the penalties levied by the ED, has held that such payment of salaries and other benefits in foreign currency outside India to expatriate employees working in India by foreign holding/ group companies, in absence of RBI approval amounted to 'otherwise acquiring foreign currency' by the expatriate employee/employer in India, and is violative of Fera provisions.

The position is now more liberal under Foreign Exchange Management Act, 1999 (Fema) (which replaced Fera) with effect from June 1, 2000.

Under the present Fema regime, subject to discharge of Indian income-taxes, a national of foreign state, employee of foreign company resident in India or citizen of India employed by a foreign company outside India, and on deputation to India may maintain a foreign currency account with a bank outside India and receive upto 75% of salary by credit to such account outside India, and balance 25% of the salary is compulsorily required to be received in Indian Rupees in India.

Further, the provisions also provide flexibility to expatriate employees to remit net salary (after deduction of Indian taxes) outside India, for maintenance of close relatives. To conclude, the restrictive provisions under Fera which provided room for litigation have been replaced by Fema which is more liberal, forward looking and provides for less restrictive repatriation policies. However, Indian companies having expatriate employees working in India, who are being paid part salaries overseas should re-validate their compliance with the provisions of Fema to avoid any similar litigation.