With India becoming a hub for global investment, the cross border movement of people especially from India is on rise like never before.
The build up to the Union Budget for financial year 2016-17 is different in many ways. Breaking from the tradition of announcing on the last day of February, it will be announced on 1 February. Further, for the first time the Railway Budget will be merged with the Union Budget. Also the country is going through a major financial reform in the form of demonetisation; while the common people by and large have accepted this transient pain in their stride, the expectation of course is that there will be benefits passed on to them on the premise that the whole demonetisation process was with the aim of rewarding the honest.
Amidst the expected policies/amendments, the following if introduced would have a far reaching effect:
With India becoming a hub for global investment, the cross border movement of people especially from India is on rise like never before. While different countries do see this as a challenge to their employable local population and hint at bringing in some sort of protectionism, it’s still a theoretical and political threat rather than a practical one. India has a huge repository of employable people which other countries at this moment do not have. Hence these countries would look at raising Visa charges; Minimum Salary / Wages requirement threshold in order to increase the cost of the business. IT/ IES sector being a major revenue earner for India, the government here should look at easing certain laws to facilitate business as well as reduce litigation cost. For example; individuals are taxable on the employment income credited in a bank account in India even if the employment is exercised outside India.
This often gives rise to litigation as the salary is earned / accrued where the employment is exercised (in this case the in the foreign country) and taxable on accrual basis and not on receipt basis. A suitable amendment in the law clarifying that in case of a Non Resident / or a Not Ordinary Resident; the salary will not be taxable in India on receipt basis unless the employment is exercised in India would help the companies as well as individuals to plan their mobility program and estimate cost there of better.
The increase in mobility of employees across the geographies often leads to double taxation of income where the country in which income is sourced is different from the country an individual is resident of. Hence, a Foreign Tax Credit (‘FTC’) is generally offered by countries that tax residents on their worldwide income. As per the provisions of Indian Income tax Act, the employer needs to deduct the taxes from the salary while paying the same. The Act does not give the employer an option of considering FTC at the withholding stage. This often results in claiming the FTC and consequential refund while filing the tax return, which means blocking of funds with the tax authorities at least for some period of time. Though admittedly in the last few years since the E-filing has set in, refunds of tax has been easier. Nonetheless it’s still an inconvenience, and keeping in mind that the legislature gives the benefit of claiming such FTC while paying advance tax (payable on income other than salary); the denial of the same benefit to the salaried class makes less sense and this anomaly needs correction.
(Authored by Shuddhasattwa Ghosh, Tax Partner, People Advisory Services, EY India. Rahul Jain, senior tax professional, EY India also contributed to the article. Views expressed are their personal)