For Chetan Sampat, a US citizen of Indian origin, moving to India nearly two years ago was a part of his job as an executive with a shipping company. But five months ago when he decided to switch jobs, along with the usual problems of living in a new country, he also has to grapple with how to file his income tax returns in India.
Being a US citizen, employed in India, Chetan has to file his returns in both the countries. In his earlier job, his returns were filed through his company by a tax advisory service. Now he has to do it on his own. While he understands the tax laws of the US, he is still at sea about tax procedures in India and is scouting for a chartered accountant who understands the nuances of tax laws in both the US and the India.
?I don?t really want to mess up my returns and get into trouble with the tax department in either country,? he reasons. And Chetan is not the only one to worry. With over 30,000 expatriates working in India, sorting out their tax troubles in itself is becoming a booming business. In fact, most leading tax advisories such as Price Waterhouse Coopers (PwC), Ernst and Young (ENY) and KPMG have set up dedicated teams for this. While PwC?s team of professionals is called the international assignment solutions, KPMG calls it the international executive services (IES). Most of these teams are a part of the international network and have tax advisors who also handle personal income tax issues for Indian clients as well.
?While the team was set up when we established our India practice, it has become very active and witnessed a lot of growth over the last four to five years,? a senior tax professional said. Each of these tax advisory and regulatory firms have over 50 members in their teams who cater to about 60 to 200 clients, including companies and individuals. On an average, companies enrolled for these services have about 200 to 500 international executives working in India. Tina Brown, a British executive with a bank in Gurgaon, is almost oblivious to the problems surrounding filing of income tax returns in India. ?My company has outsourced this work to a tax advisory firm who takes care of it for me and other expat colleagues. I just need to give them my income details, like I did in the UK and so it?s not very difficult for me,? she said.
Most such executives working in India come from the United States, the United Kingdom, Germany, France, Japan, Singapore, Australia and the United Arab Emirates. ?Being well versed with Indian personal income tax laws is mandatory so that we can advise these clients accordingly,? the head of a tax advisory firm said. While foreign companies in India have a different tax treatment than Indian companies, the laws are not very different for foreign workers but they need to be familiarised with the legal requirements. Most tax advisories start from scratch by explaining the legal position about visas, period of stay and the Foreign Regional Registration Office.
?The kind of visa and the length of stay largely determine an expat individual?s tax liability in India . The exact period of residence in India has to be calculated very carefully to understand an expatriate?s tax liability in the country,? points out Kuldip Kumar, associate director at PwC.
Tax advisors then begin sifting through the various sources of income each client has and determining where the tax for it would be payable. ?Figuring out what income is taxable in India and what is a part of the client?s global income is a major issue,? said Vikas Vasal, head of IES and executive director at KPMG. For instance, income from employment has to be taxed in India, while a client?s rental income from a flat in the US would be liable for tax there.
It?s also important to understand a client?s job profile. If a client has a regional responsibility of the Asia-Pacific region, then one needs to calculate what portion of his salary is taxable in India. The double taxation avoidance agreements (DTAAs), which spell out the applicability of tax between India and the concerned country also has to be used while calculating expats? tax liability.
?While the personal income tax rules apply equally to expatriates and Indian citizens working in India, expatriates have a further advantage of being able to apply the relevant tax treaty if that is more beneficial than the Indian domestic tax rules,? said Amitabh Singh, partner, Ernst and Young. The DTAAs also provide clarity on the foreign tax credit that can be availed as well as the taxability of certain items, which may be exempt in either of the two countries.
For expatriates, perks like employee stock options (Esops) also turn into a significant issue as some countries tax Esops when exercised, while India taxes Esops as soon as they are vested. Moreover, if an employer pays fringe benefit tax on the Esops in India , the expat employee can?t avail tax credit on it overseas. With most expats being in the high-income group category, their returns are taken up more frequently for scrutiny. So maintaining paper records of credit card statements, salary statements and major purchases is very essential, as the income tax department is still not fully computerised.
But Chetan reasons that working in India is still worth all these taxing troubles. ?It is a good time to be in India , especially considering all the problems that the US is going through right now,? he said, a view many of his expat friends agree with.