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INDIA 2010 Expat Taxation

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    TAX

    INTERNATIONAL EXECUTIVE SERVICES

    IndiaTaxation of International Executives

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    Taxation of International Executives 1

    2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

    India:Taxation of International Executives

    Overview and Introduction _____________________________________________2 Income Tax ___________________________________________________________3

    Tax Returns and Compliance ___________________________________________3 Tax Rates____________________________________________________________3 Residence Rules______________________________________________________4 Termination of Residence______________________________________________4 Economic Employer Approach__________________________________________5 Types of Taxable Compensation ________________________________________5 Tax-Exempt Income___________________________________________________6 Expatriate Concessions________________________________________________7 Salary Earned from Working Abroad_____________________________________7 Taxation of Investment Income and Capital Gains _________________________7 Additional Capital Gains Tax (CGT) Issues and Exceptions __________________8 General Deductions from Income _______________________________________9 Tax Reimbursement Methods __________________________________________9 Calculation of Estimates/Prepayments/Withholding _______________________9 Relief for Foreign Taxes ______________________________________________10 General Tax Credits __________________________________________________10 Sample Tax Calculation _______________________________________________10

    Special Considerations for Short-Term Assignments ____________________13 Residency Rules_____________________________________________________13 Payroll Considerations ________________________________________________13 Taxable Income______________________________________________________13 Additional Considerations _____________________________________________13

    Other Taxes and Levies _______________________________________________14 Social Security Tax ___________________________________________________14 Gift, Wealth, Estate, and/or Inheritance Tax _____________________________14 Real Estate Tax______________________________________________________15 Sales/VAT Tax _______________________________________________________15 Other Taxes_________________________________________________________15

    KPMG in India ________________________________________________________16

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    2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

    Overview and IntroductionTaxation varies based on the residential status of the individual in a tax year. Individuals can be classified asresident, not ordinarily resident, or non-resident.

    Residents are taxed on worldwide income. Non-residents and not ordinarily residents are taxed only on incomereceived, accrued, or deemed to accrue or be received in India. Consequently, their income accruing outsideIndia or received outside India is not taxable in India, unless the same is received in India. Salary for servicesrendered in India is deemed to accrue in India and hence, taxable in India for all individuals, irrespective of theplace of payment. The leave period before or after services rendered in India and which forms part of theemployment contract is deemed to have been earned for services rendered in India.

    Income tax is levied based on progressive tax rates currently not exceeding 30 percent on taxable income inexcess of INR 800,000. Additionally there is a levy of education cess at the rate of 3 percent on the amount oftax.

    The official Indian currency is the Indian Rupee (INR).

    For information on practical matters that employers and employees should consider with respect to an

    international assignment, please refer to the companion booklet titled Planning Your International Transfer, ifavailable.

    For the purposes of this publication, the host country refers to the country to which the employee is assigned.The home country refers to the country where the assignee lives when he/she is not on assignment.

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    2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

    Income TaxTax Returns and Compliance

    When are tax returns due? That is, what is the tax return due date?

    An individuals tax return must be filed by 31 July immediately following the end of the tax year on 31 March.

    There is no provision for extension of the filing date.

    What is the tax year end?

    The tax year ends on 31 March. The income earned during a year is taxable in the following year. The year inwhich income is earned is known as the previous year or tax year and the year in which the income is taxable isknown as the assessment year.

    What are the compliance requirements for tax returns in India?

    An individual is required to obtain a registration with the tax authorities i.e. Permanent Account Number (PAN).PAN is a unique identification number given by the Indian tax authorities. PAN is required to be quoted on all thecorrespondence with the tax authorities.

    An individual is required to file a tax return in India only if his/her taxable income exceeds the prescribedminimum exemption limit (INR 160,000).

    Tax is withheld at source on salaries, professional fees, rent, interest, dividends, and so on. at the time suchincome is credited to the account of the payee or at the time of payment, whichever is earlier. In case theamount of tax to be withheld is short of the actual tax liability, an individual is liable to pay advance tax.

    Advance tax is payable by the taxpayer during the tax year. Advance tax payable is the tax on estimated incomeof the tax year, reduced by tax withheld at source. It is payable in installments as follows.

    Thirty percent is payable by 15 September.

    Up to 60 percent is payable by 15 December.

    One-hundred percent by 15 March.

    In case of default in filing of a tax return, interest is levied on the amount of unpaid tax at the rate of 1 percentfor every month or part thereof during which the default continues and is payable along with the self-assessment tax before filing of the tax return. In case of default in payment of advance tax, interest is levied onthe shortfall of advance tax and the deferment of advance tax at the rate of 1 percent for every month or partthereof, during which the default occurs. Such interest is payable before filing of the tax return.

    Tax Rates

    What are the current income tax rates for residents and non-residents in India?

    Tax rates for individuals are common for all, irrespective of their residential status. The income tax rates forassessment year 2011/2012 (tax year 2010/2011) are as follows:

    Income tax table for 2010

    Taxable income bracket Total tax on incomebelow bracketTax rate on income

    bracketFrom ToINR INR INR Percent

    0 160,000* 0160,001 500,000 10% of the excess over

    INR 160,00010

    500,001 800,000 INR 34,000 + 20% of theexcess over INR 500,000

    20

    800,001 No limit INR 94,000+ 30% of theexcess over INR 500,000 30

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    Education cess at the rate of 3 percent is payable on the amount of tax. Therefore, the effective maximummarginal rate would be 30.90 percent.

    *INR 190,000 in case of a resident woman below the age of 65 years.

    *INR 240,000 in case of a resident individual of the age of 65 years or above.

    There is no provision for joint filing of the Return of Income. There is no distinction amongst individuals, whethermarried, unmarried, or having children and the same rate is applicable to all.

    Residence Rules

    For the purposes of taxation, how is an individual defined as a resident of India?

    An individual is said to be resident in India in any tax year if he/she is:

    present in India in that year for a period or periods totaling 182 days or more; or

    present in India for at least 60 days or more during the tax year (182 days or more for a citizen ofIndia/person of Indian origin on a visit to India; 182 days or more for a citizen of India who leaves India for

    employment abroad or as member of a crew of an Indian ship) and 365 days or more during the precedingfour tax years.

    An individual who does not satisfy either of the above conditions is a non-resident (NR). A not ordinarily resident(NOR) is an individual who:

    has been non-resident in India in nine out of the 10 tax years preceding that year, or

    has during the seven tax years, preceding that year, been in India for a total period of 729 days or less.

    Residents are taxed on worldwide income. However, NR and NOR are generally taxed only on Indian-sourceincome.

    Is there, a de minimus number of days rule when it comes to residency start and end date? For example, ataxpayer cant come back to the host country for more than 10 days after their assignment is over and theyrepatriate.

    There is no de minimus number of days rule in respect of residency start/ end date. However an individualvisiting India for the first time would remain NR if his stay during the tax year does not exceed 182 days, in casehis/her stay exceeds 182 days then he/she would be NOR. He/She can maintain NOR status for first three yearof his stay in India.

    What if the assignee enters the country before their assignment begins?

    In India the residential status is determined based on the individual's total physical stay in India during theconcerned tax year, therefore the days spent in India before the start of the assignment are considered for

    determining the residential status of the individual in India.

    Termination of Residence

    Are there any tax compliance requirements when leaving India?

    Subject to notified exceptions, persons not domiciled in India who visit India in connection with business,profession, or employment, and who derives income from any source in India, can leave India only after getting ano objection certificate from the tax authorities to do so. The tax authorities shall give such a certificate whenthe person submits an appropriate undertaking from his employer/ payer of income, in respect of payment oftaxes due from such person in India. However, there are no special formalities for terminating residence.

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    What if the assignee comes back for a trip after residency has terminated?

    In India, the residential status is determined each year based on the total physical stay of the individual in theconcerned tax year. This is irrespective of the purpose of stay of assignee in India. Also, there is no concept ofpart residency in India.

    Communication between Immigration and Taxation Authorities

    Do the immigration authorities in India provide information to the local taxation authorities regarding when aperson enters or leaves India?

    There is no formal system under which immigration authorities in India provide information to local taxationauthorities. However, recently tax authorities have started requesting such details from the immigrationauthorities on a regular basis.

    Filing Requirements

    Will an assignee have a filing requirement in the host country after they leave the country and repatriate?

    An individual is required to file return of income only if there is taxable income in India exceeding the prescribedminimum exemption limit. This is irrespective of the presence of assignee in India.

    Economic Employer Approach 1

    Do the taxation authorities in India adopt the economic employer approach to interpreting Article 15 of the OECDtreaty? If no, are the taxation authorities in India considering the adoption of this interpretation of economicemployer in the future?

    There are no defined rules in this respect. However, OECD commentary is commonly used by tax authoritieswhile interpreting the treaty provisions.

    De minimus Number of Days 2

    Are there a de minimus number of days before the local taxation authorities will apply the economic employer

    approach? If yes, what is the de minimus number of days?There are no de minimus number of days for applying the economic employer approach.

    Types of Taxable Compensation

    What categories are subject to income tax in general situations?

    In general, income from employment includes all compensation, in-cash or in-kind, which is due to or received byan employee in a tax year. Taxable compensation includes the following.

    Salary, wages, bonuses, allowances, and other cash compensation for services rendered.

    Income tax paid by the employer on behalf of the employee.

    Specified perquisites.

    The Finance Act of 2009 had abolished Fringe Benefit Tax (FBT) with effect from 1 April 2009. As aconsequence, it has restored the taxation of benefits provided by the employer in the hands of the employees.

    As a consequence of the abolition of FBT, an amendment in the perquisite valuation rules has been notified.Certain benefits which were subject to FBT will now be taxed in the hands of the employees,such as carexpenses, payments for use of clubs, gifts, and so on.

    1

    Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if anemployee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the homecountry employer but the employee's salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the "economic employer" and therefore theemployer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.2 For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the economic employer approach.

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    2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

    Tax-Exempt Income

    Are there any areas of income that are exempt from taxation in India? If so, please provide a general definition ofthese areas.

    The following items of compensation are not taxable.

    Certain Travel/Tour Allowances.

    Reimbursement of medical expenses.

    Medical expenses of an employee or any member of his/her family incurred outside India.

    Leave travel concession.

    Allowance granted to meet payment of rent.

    Tax borne by the employer on non-monetary perquisites.

    Telephone expenses

    Certain Travel/Tour Allowances

    Allowances granted to meet the cost of travel on tour or on transfer, including sums paid in connection with thetransfer, packing, and transportation of personal effects on such transfer, are exempt to the extent to whichsuch expenses are actually incurred.

    Reimbursement of Medical Expenses

    Reimbursement of medical expenses actually incurred by the employee for himself/herself or any member ofhis/her family is exempt up to INR 15,000 per tax year. However, any reimbursement of costs of hospitalizationin a recognized hospital in India is fully exempt. Employers contributions to health insurance plans abroad wouldbe taxable in India only to the extent the employee has an interest in the plan vested in him/her during the taxyear.

    Medical Expenses of an Employee or any Member of his/her Family Incurred outside India

    Medical expenses of an employee or any member of his/her family incurred outside India is exempt to theextent permitted by Reserve Bank of India. The cost of a stay abroad of the employee or a family member andone attendant is also exempt to the extent permitted by the Reserve Bank of India.

    Leave Travel Concession

    Leave travel concession granted to the employee for himself/herself and his/her family for proceeding on leaveto any place in India is exempt with respect to two journeys performed in a block of four calendar years, subjectto fulfillment of certain conditions. The current block is 2010-2013.

    Allowances for Payment of Rent Allowance granted to meet payment of rent in respect of residential accommodation occupied by the employeeis exempt, subject to certain limits.

    Tax Borne by the Employer on Non-Monetary Perquisites

    Tax borne by the employer on non-monetary perquisites provided to the employee is exempt from tax providedthe employer does not claim it as a deduction against its taxable income.

    Telephone expenses

    Telephone (including the mobile phone) expenses, paid by the employer on behalf of the employee orreimbursed by the employer based on actual expenses of the employees, is exempt from personal taxation.

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    2010 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

    Expatriate Concessions

    Are there any concessions made for expatriates in India?

    Certain exemptions are available to foreign nationals and/or non-residents, subject to fulfillment of prescribedconditions. The exemptions available include the following.

    Remuneration for services rendered by a foreign national, employed by a foreign enterprise during his/herstay in India, is exempt if:

    o the total period of the stay in India does not exceed 90 days in a tax year;

    o the foreign enterprise is not engaged in any trade or business in India; or

    o the remuneration is not charged to an entity subject to Indian income tax.

    Remuneration received by or due to a non-resident foreign national for services rendered in connection withemployment on a foreign ship, where the total period of the stay in India does not exceed an aggregateperiod of 90 days in a tax year, is exempt from tax.

    Remuneration received by a foreign national working as an employee of a foreign government is exemptfrom tax, if the remuneration is received in connection with training activity in an undertaking, office, orcompany owned by the government.

    Remuneration from any cooperative technical assistance program in accordance with an agreement enteredinto by the central government with a foreign government is exempt from tax, provided:

    o the remuneration is received from the foreign government; and

    o the employee is required to pay income tax to another foreign government on income arisingoutside India.

    Salary Earned from Working Abroad

    Is salary earned from working abroad taxed in India? If so, how?

    Compensation received outside India for work performed by an expatriate abroad, which is not in connectionwith the services being rendered in India, is not taxable in India, unless the same is received in India, where theexpatriate is non-resident or resident, but not ordinarily resident in India.

    Taxation of Investment Income and Capital Gains

    Are investment income and capital gains taxed in India? If so, how?

    Income from the transfer of a capital asset situated in India is deemed to accrue in India. Hence, all individualsare liable for tax on capital gains arising from the transfer of capital assets in India. Securities Transaction Tax(STT) is leviable on transactions of equity shares in a company, units of an equity oriented Mutual Fund andderivatives which are routed through any recognized stock exchange in India.

    Short-term capital gains (that is, capital gains on shares or any other security listed on a recognized stockexchange in India or on units of specified mutual funds held for not more than one year, and in case of otherassets held for not more than three years) are taxed in the same manner as ordinary income. Short-term capitalgains arising on transfer of securities liable to STT is taxed at a flat rate of 15 percent (plus education cess).

    Long-term capital gains arising on transfer of listed securities liable to STT is exempt from tax.

    Long-term capital gains from transfer of other assets are taxed at a concessional rate of 20 percent pluseducation cess. In determining such long-term capital gains, the cost of assets is indexed upwards for inflationas per the notified index table.

    Securities transaction tax leviable varies from 0.017 percent to 0.25 percent of the transaction value, dependingon the type of securities transacted in.

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    Dividends, Interest, and Rental Income

    Dividend from shares held in Indian Companies and specified Mutual Funds are exempt from tax. However incase of a resident, dividend income from investments outside India is taxable, subject to treaty benefits.Expenses incurred specifically for earning such taxable investment income are deductible.

    Interest income earned in respect of the investments made in India is subject to tax in India. Also, in case of aresident, interest income from foreign investment is taxable, subject to treaty benefits.

    Any rental income is subject to tax in India. The expenses incurred in paying any municipal taxes and mortgageinterest and a standard deduction in respect of other expenses in allowable while computing the taxable income.

    Gains from Stock Option Exercises

    As a consequence of abolishing FBT, benefits from ESOPs, which were previously being taxed under the FBTregime, will now be taxed as perquisite in the hands of employees. The taxability of a benefit arising out ofESOPs is triggered at the time the option is exercised. The perquisite value is determined as the Fair MarketValue (FMV) on the date on which the option is exercised by the employee as reduced by the amount actuallypaid by, or recovered from the employee in respect of such ESOPs. FMV means the value determined in

    accordance with the method prescribed by the Central Board of Direct Taxes.

    Further, if after exercising the options, the employee holds the shares for some time and sells the samesubsequently, the difference between the sale consideration and the FMV considered for calculating theperquisite value would be subject to capital gains tax. Depending on the period of holding the capital gains wouldbe considered as Short-term/Long-term.

    Principal Residence Gains and Losses

    There is no specific provision governing the taxability of Gains and Losses of principal residence.

    Capital Losses

    Subject to certain conditions, the capital losses incurred by the assignee in India can be set-off only against the

    capital gains during the tax year. If the loss cannot be set-off, the amount can be carried forward to subsequenttax years to be set-off against capital gains.

    Gifts

    Any sum(s) received (except for sums received from relatives and in certain other specified situations) by anindividual from any person in cash/check/draft/any other mode or by way of credit or otherwise than asconsideration for goods and services is taxable as "income from other sources". However, the total of suchreceipts to the extent of INR 50,000 is exempt.

    Additional Capital Gains Tax (CGT) Issues and Exceptions

    Are there additional capital gains tax (CGT) issues in India? If so, please discuss?

    For non-residents, capital gains arising from the transfer of shares or debentures of an Indian company arecalculated in the same foreign currency as was initially used to purchase such shares or debentures and the costinflation index is not applied to such gains. Long-term capital gains arising from the transfer of specified bonds orGlobal Depository Receipts issued in foreign currency are taxed at the rate of 10 percent.

    Exemption from long-term capital gains may be claimed by making investment in residential house and/or certainbonds, subject to specified conditions.

    Are there capital gains tax exceptions in India? If so, please discuss?

    Pre-CGT Assets

    Not applicable.

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    Deemed Disposal and Acquisition

    Not applicable.

    General Deductions from Income

    What are the general deductions from income allowed in India?

    Deductions from income, subject to fulfillment of certain conditions, include the following:

    Specified donations to institutions in India: 50 percent of donation subject to 10 percent of gross income.Certain donations are eligible for 100 percent deduction.

    Health insurance premium payments to specified insurers: Deductions of up to INR 15,000 in respect ofinsurance of the individual or his/her family members. (Up to INR 20,000 in case the person insured is asenior citizen.) Additional deduction of up to INR 15,000 is available in respect of health insurance premiumpaid for parents of the individual.

    A deduction of up to INR 50,000 is available to a person resident in India suffering from disabili ty (INR75,000 for persons with severe disability) subject to certain conditions. Deduction of up to INR 40,000 in

    respect of medical treatment of a resident or his/her dependents, for specified diseases (up to INR 60,000 incase of senior citizens).

    A deduction from the income of an individual not exceeding INR 100,000 is allowed with respect to sums paid ordeposited in the tax year out of income chargeable to tax, in certain specified schemes.

    The following are some of the investments/payments qualifying for the deduction.

    Insurance Premium, subscription to National Savings Certificate Scheme, contribution to recognizedProvident Fund or to a Public Provident Fund in India, subscription to National Saving Scheme.

    Repayment of a loan or payment towards cost of purchase/construction of new residential house.

    Subscription to units of mutual fund under specified schemes or to approved issues (proceeds to be usedfor development, and so on. of infrastructure facilities) of equity shares/debentures made by publiccompanies or public financial institutions in India.

    Tax Reimbursement Methods

    What are the tax reimbursement methods generally used by employers in India?

    Indian companies are not allowed to bear any tax on behalf of its employees. Therefore, normally a fixed specialallowance equivalent to taxes is paid to the employees and then deposited by way of withholding taxes. In caseof individual employed with foreign companies the company normally deposits the tax directly with the taxauthorities by way of withholding taxes.

    Calculation of Estimates/Prepayments/Withholding How are estimates/prepayments/withholding of tax handled in India? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.

    The India tax system runs on Pay-As-You-Earn basis in respect of salary, interest, and so on. Accordingly, taxneeds to be withheld and deposited with the tax authorities on a monthly basis. If the taxes are not deposited ona monthly basis, there would be an interest charge at the rate of 1 percent per month leviable for all the monthsfor which taxes have not been paid til l date of the payment of tax. Also, the tax deposit due date for any monthis by seventh of the next month.

    Pay-As-You-Earn (PAYE) Withholding

    Every employer has the obligation to deduct tax from employees' remuneration at the time of payment thereof.Tax is to be deducted on the estimated income of the employee after allowing for permissible deductions.

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    Advance Tax Installments

    In case the amount of tax to be withheld is short of the actual tax liability, an individual is liable to pay advancetax.

    Advance tax is payable by the individual during the tax year. Advance tax payable is the tax on estimated incomeof the tax year, reduced by tax withheld at source. It is payable in installments as follows.

    Thirty percent is payable by 15 September.

    Sixty percent is payable by 15 December.

    One-hundred percent by 15 March.

    When are estimates/prepayments/withholding of tax due in India? For example, monthly, annually, both, and soon.

    As discussed earlier, an employer is liable to deduct tax at the time of salary payment to its employees. The taxdeducted is to be deposited with the central government within seven days from the end of the month in whichtax is deducted.

    Furthermore, an annual certificate is required to be issued to the employee in respect of tax deducted at source,within one month from the end of the tax year. The employer is also required to submit quarterly withholding taxstatements in respect of the tax deducted at source during the year.

    Relief for Foreign Taxes

    Is there any Relief for Foreign Taxes in India? For example, a foreign tax credit (FTC) system, double taxationtreaties, and so on?

    A resident in India is entitled to credit for foreign taxes paid on foreign-sourced income against the Indian taxpayable on such income:

    where agreement for avoidance of double taxation exists between the two countries, in accordance withthe terms of that agreement; and

    in other cases, at the lower of the foreign or Indian rates of tax, or at the Indian rate of tax, if both the ratesare equal.

    India has Double Taxation Avoidance Agreement (DTAA) with the countries listed in Annexure A.

    General Tax Credits

    What are the general tax credits that may be claimed in your country? Please list below.

    The Indian tax law does not have any specific provisions for tax credit. Deductions from the taxable income,subject to certain limits are available (as discussed in the earlier sections).

    Sample Tax Calculation 3

    This calculation assumes a married taxpayer resident in India with two children whose three-year assignmentbegins 1 January 2010 and ends 31 December 2012. The taxpayers base salary is USD 100,000 and thecalculation covers three years.

    2010 2011 2012USD USD USD

    Salary 100,000 100,000 100,000Bonus 20,000 20,000 20,000 Cost-of-living allowance 10,000 10,000 10,000 Housing allowance 12,000 12,000 12,000

    3 Sample calculation generated by KPMG, the Indian member firm of KPMG International, a Swiss cooperative , based on the tax rates applicable as per the Indian Finance Act 2005.

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    Company car 6,000 6,000 6,000 Moving expense reimbursement 20,000 0 20,000 Home leave 0 5,000 0 Education allowance 3,000 3,000 3,000 Interest income from non-local sources 6,000 6,000 6,000

    Exchange rate used for calculation: USD 1.00 = INR 44.02

    Other Assumptions

    All earned income is attributable to local sources.

    Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.

    Interest income is not remitted to India.

    The company car is used for business and private purposes and originally cost USD 50,000.

    The employee is deemed resident throughout the assignment.

    Tax treaties and totalization agreements are ignored for the purpose of this calculation.

    Calculation of Taxable Income

    Year-ended 2010 2011 2012Days in India during year 365 365 366

    INR INR INREarned income subject to income taxSalary 4,402,000 4,402,000 3,301,500Bonus 880,400 880,400 660,300Cost-of-living allowance 440,200 440,200 330,150Taxable housing allowance 268,440 268,440 201,330Moving expense reimbursement -Home leave 55,025 165,075

    Education allowance 132,060 132,060 97,245Motor Car - 39,600 29,700Total earned income 6,178,125 6,327,775 4,622,025Other income 264,120 264,120 198,090Total income 6,442,245 6,591,895 4,818,315Deductions: - - -Total taxable income 6,442,245 6,591,895 4,818,315

    Calculation of Tax Liability

    2008 2009 2010INR INR INR

    Taxable income as above 6,442,245 6,591,895 4,818,315Taxes @ 30% 1,837,673 1,881,568 1,299,495

    183,767Education Cess 60,643 56,447 38,985Indian tax thereon 2,082,083 1,938,015 1,338,480Less:

    Domestic Tax rebates (dependentspouse rebate)

    - - -

    Foreign tax credits - - -Total Indian tax 2,082,083 1,938,015 1,338,480

    Taxable Housing Allowance

    2010 2011 2012INR INR INR

    Actual rent (assumed INR 700,000 per

    year)

    700,000 700,000 525,000

    Actual housing allowance 528,240 528,240 396,180

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    Least of the following is exempt:Excess of rent paid over 10% of salary 259,800 259,800 194,85050% of basic salary* 2,201,000 2,201,000 1,650,750Actual housing allowance 528,240 528,240 396,180Housing allowance exempt 259,800 259,800 194,850

    *Assuming that the expatriate is residing in a Metro city. In case of a non-metro city, the percentage is 40percent.

    Calculation of Perquisite Value in Hands of Employee

    2010 2011 2012INR INR INR

    Company car 264,120 264,120 198,090Perquisite Value 52,824 39,600 29,700Fringe benefit Tax (For 2008)/ Tax (for

    2009 and 2010)15,847 11,880 8,910

    Add: Surcharge (not applicable for2009 and 2010)

    1,585 Nil Nil

    Add: Education Cess 523 356 268Total Fringe Benefit Tax / Income Tax 17,955 12,236 9,178

    Total Tax Burden

    2010 2011 2012INR INR INR

    Total Indian tax 2,082,083 1,938,015 1,339,036Total Fringe Benefit tax (for 2008) / Income Tax (For 2009 and 2010)

    17,955

    Total tax burden 2,100,038 1,938,015 1,339,036

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    Special Considerations for Short-Term Assignments 4 Residency Rules

    Are there special residency considerations for short-term assignments?

    An individual who does not exceed 182 days in a particular tax year or 60 days in the relevant year and 365 days

    in the last four tax years, shall be considered as a non-resident in India. Accordingly, he/she shall be taxable onlyin respect of income earned for services rendered in India.

    Payroll Considerations

    Are there special payroll considerations for short-term assignments?

    There are no special payroll considerations for short term assignments.

    Taxable Income

    What income will be taxed during short-term assignments?

    An individual is taxed in respect of income earned for services rendered in India irrespective of his/her residential

    status. However, in case of an individual on a short term assignment in India, short stay exemption may beclaimed in respect of India taxes subject to the fulfillment of the prescribed conditions in the relevant DoubleTaxation Avoidance Agreement/Domestic tax law.

    Additional Considerations

    Are there any additional considerations that should be considered before initiating a short-term assignment inIndia?

    Depending upon the treaty provisions short-term assignments can be planned in a manner so as to avail theshort stay exemption.

    4 For the purposes of this publication, a short-term assignment is defined as an assignment that lasts for less than one year.

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    Other Taxes and LeviesSocial Security Tax

    Are there social security/social insurance taxes in India? If so, what are the rates for employers and employees?

    A new concept of International Workers 5 (IW) has been introduced (effective from 1 November 2008) which

    includes expatriates (foreign passport holders) working for an employer in India and the Indian employeesworking overseas. The IW(s) would be required to become members by joining the Provident Fund (PF) Schemeand the Pension Scheme. A relief has been provided in case of an Excluded Employee 6 which primarily refersto IWs coming from a country with which India has entered into a social security agreement.

    Broadly, with respect to every IW, other than an Excluded Employee, both the IW and the employer would berequired to make contributions as per the PF Act. Hence, all IW (s) are now required to become members of thePF Scheme, the Pension Scheme, and EDLIS unless they qualify as Excluded Employees.

    Accordingly, it is now mandatory (subject to applicability of the PF Act) for an IW who does not qualify as anExcluded Employee to contribute to the PF Scheme at the rate of 12 percent of his salary. The employer is alsorequired to make a matching contribution of 12 percent.

    Gift, Wealth, Estate, and/or Inheritance Tax 7

    Are there any gift, wealth, estate, and/or inheritance taxes in India?

    There is no estate tax levied in India.

    Wealth-tax is chargeable at the rate of 1.03 percent (inclusive of education cess) of the net wealth of theindividual, exceeding INR 3 million, as on the last date of the relevant tax year (that is, 31 March). Individualshaving taxable wealth are also required to file the wealth tax return annually.

    Foreign citizens are taxable only in respect of their net wealth located in India irrespective of their residential

    status.

    Individuals/Hindu Undivided Families who are non-residents, resident but not ordinarily resident in India, andCompanies who are non-resident in India, are taxable only in respect of their net wealth located in India.

    The assets liable for wealth tax are:

    residential House (more than one);

    motor car;

    jewelry, bullion, utensils of gold, silver, and so on;

    yachts, boats, and aircrafts;

    urban land; and

    cash in hand in excess of INR 50,000.

    There is no gift tax payable by donor. However, income includes any sum(s), received without consideration(except for sums received from relatives, on occasion of marriage, by inheritance, and so on.), by an individual,from any person, if the same exceeds INR 50,000 in a year. Furthermore, any gift-in-kind, being an immovable

    5As per the Notification dated 1 October, 2008, International Worker means:

    (a) an Indian employee having worked or going to work in a foreign country with which India has entered into social security agreement and being eligible to avail benefits under a socialsecurity programme of that country, by virtue of the eligibility gained or going to gain, under the said agreement; and

    (b) an employee other than an Indian employee, holding other than an Indian passport, working for an establishment in India to which the PF Act applies.

    6As per the Notification dated 1 October, 2008 Excluded Employee means an International Worker, who is contributing to a social security programme of his/her country of origin, either as a citizen or

    resident, with whom India has entered into social security agreement on reciprocity basis and enjoying the status of detached worker for the period and terms, as specified in such an agreement.7 Indian Wealth Tax Act, 1957.

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    property or any other property, the value of which exceeds INR 50,000, will become taxable in the hands of therecipient.

    Real Estate Tax

    Are there real estate taxes in India?

    Property tax / real estate tax is payable as per local municipal laws on commercial and residential propertyowned.

    Sales/VAT Tax

    Are there sales and/or value-added taxes in India?

    Customs duty is payable on certain specified goods bought into India and other indirect taxes such as sales tax,expenditure tax and service tax are payable on purchase of goods and services.

    Other Taxes

    Are there additional taxes in India that may be relevant to the general assignee? For example, customs tax,excise tax, stamp tax, and so on.

    Profession Tax

    Certain states in India levy a profession tax on employees. This tax is to be withheld from salary by the employerand is also deductible in computing the taxable income of the employee.

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    KPMG in India

    Delhi

    Vikas Vasal8th Floor,, Building No.10, Tower BDLF Cyber City, Phase IIGurgaonHarayana 122002India

    Tel. +91 124 3074000Fax +91 124 2549102e-Mail: [email protected]

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    The information contained herein is of a general nature and is not intended to address thecircumstances of any particular individual or entity. Although we endeavor to provide accurate andtimely information, there can be no guarantee that such information is accurate as of the dateit is received or that it will continue to be accurate in the future. No one should act upon suchinformation without appropriate professional advice after a thorough examination of the particularsituation.

    The material contained within draws on the experience of KPMG tax personnel and theirknowledge of local tax law in each of the countries covered. While every effort has been made toprovide information current at the date of publication, tax laws around the world change constantly.Accordingly, the material should be viewed only as a general guide and not be relied on withoutconsulting your local KPMG tax adviser for the specific application of a country's tax rules to yourown situation.

    2010 KPMG, an Indian Partnershipand a member firm of theKPMG network of independent memberfirms affiliated with KPMG InternationalCooperative (KPMG International), a Swissentity. All rights reserved.

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