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Taxation of Foreign Nationals

Any person of Indian origin who has settled abroad and granted citizenship of foreign country, also known as NRIs'. A person is said to be of Indian origin if he, or either of his parents or any of his grand­parents, was born in undivided India.
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Who is Foreign National?

Any person who is not a citizen of India, is a foreign national.

Foreign National of Indian Origin

Any person of Indian origin who has settled abroad and granted citizenship of foreign country, also known as NRIs'. A person is said to be of Indian origin if he, or either of his parents or any of his grand­parents, was born in undivided India.

Incomes Liable to Tax
The taxability of income of a person depends primarily upon his 'residential status' If a foreign citizen is resident in India, all incomes received, accrued or arisen to him in India or abroad shall be subject to tax in India. If a foreign citizen is not resident in India, only incomes that are received, accrued or arisen to him in India, shall be taxable.

Incomes Exempt from Tax

(1) Remuneration of officials of embassies, high commission, etc. [Sec.10(6)(ii)]

(2) Remuneration received from a foreign enterprise for services rendered in India, provided his stay in India does not exceed 90 days during a previous year. [Sec.10(6)(vi)] (3)

(3) Remuneration of an employee on a foreign ship where his :t9' stay in India does not exceed 90 days in a previous year. [Sec.10(6)(viii)

(4) Remuneration of employees of a Foreign Government, on training in certain establishments in India. [Sec. 10(6)(xi)]

(5) Income of a Consultant under a Technical Assistance Grant Agreement. [Sec.1 0(8A)]

For other exemptions, please refer to Chapter 'Incomes Exempt from Tax'.

Tax Liability of Foreign Nationals

Foreign nationals resident in India are liable to pay tax on the­ taxable income as in case of other resident assessees.

Foreign nationals who are non-residents are liable to pay tax as under:

(i) at special rates on income from dividends (not subjected to additional income-tax u/s 115-o), interest and capital gain from units of mutual funds/UTI, bonds, Global Depository Receipts and shares, royalty or fees for technical services. [Sec.115A and 115A]

(ii) at special rate of 10% in respect of gross receipts 0 sportsman for his participation in India in a game or sports from advertisement or contribution of articles, and income sports association. [Sec.115 BBA]

(iii) at normal rates on other incomes.

Besides, if they have investment income or long-term capital gains from any foreign exchange asset they shall be eligible to a the special provisions of Chapter XII-A.

How is an expatriate's income taxed when they become a Resident in India?

Taxability of income in India depends upon residential status. For a Resident entire income earned anywhere on the globe is taxable in India. This includes income that may have been earned in the country of citizenship and may also have been taxed there.

If the expatriate is a NRI or a Resident but not ordinarily resident (RNOR) only the income which is earned in India is taxable in India. Therefore, the first step is to find out the residential status. As per the residential status rules of the Indian Income Tax Act, for the first 2 years after your arrival in India you will enjoy RNOR status and will pay tax only on the income which is earned by you in India.

Source of Income of Foreign nationals

Taxable compensation includes salary, wages, allowances (such as reimbursement for personal expenses like housing, transportation, and education payments), and other cash compensation for services rendered in India, regardless of whether salary is received in India or whether the employer is outside India. Taxable compensation also includes income tax paid by the employer on behalf of the employee and certain perquisites such as a car and driver provided by the employer.

Income that is received or accrued in India may also be subject to income tax. Additionally, income that arises outside India is subject to income tax for individuals who are ROR in India.

Non-employment Income
Foreign nationals are permitted to maintain foreign currency accounts outside India and receive their entire salary outside India as long as full taxes are paid on any salary accrued in India. Foreign nationals may also open bank accounts in India, and funds can be moved into those accounts from sources outside India. However, individuals must use care when making transactions involving non-employment income and their Indian bank accounts. If non-employment income is earned on investments outside India and is subsequently transferred to an Indian bank account, it will not be taxable in India. If the non-employment income is directly remitted to an Indian account, it is likely to become taxable in India.

Other types of non-employment income taxable in India include long and short-term capital gains earned on the disposal of capital assets situated in India, royalties payable by an Indian concern, and payments of interest on Indian infrastructure debt funds.
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