Taxation for employees going abroad on assignments

In India,taxation of an individual depends on his/her residential status in India. Therefore,to ascertain Indian tax liability,the residential status of an individual needs to be determined every year while on overseas assignments.

The residential status depends on the physical presence of an individual in India during the particular year. An individual qualifies as a resident of India on completing one of two conditions: if he spends more than 182 days in India during the financial year; or if he spends 60 days or more in the financial year and 365 days during the four financial years immediately preceding such a financial year.

Ocne any of the conditions is met,an Indian citizen who has primarily been based in India in the past,is likely to qualify as an ordinary resident in India and his worldwide income is taxable in India. In a case in which neither of the conditions is met,such a person is likely to qualify as a non resident in India and only the income sourced in India would be taxable in India.

There is an important provision designed to relax the number of days an Indian citizen could stay in India before being treated as an ‘ordinary resident’. The period of 60 days,as per the second condition,is extended to 182 days in the year of departure,in case an Indian citizen leaves India ‘for the purpose of employment outside India’.

A similar concession is also available to a person of Indian origin on a visit to India,in which the 60-day rule is substituted by one for 182 days. However,the proposed Direct Taxes Code does not provide concessions to an Indian citizen/person of Indian origin visiting India.

Visits/trips of short durations which may be construed as ‘being on tour’ outside India,are generally not interpreted as leaving India for the purpose of employment.

To summarise,an Indian citizen who leaves India for employment should plan his assignment to ensure that his stay in India does not exceed 181 days during the financial year. This will help the individual from being taxed on his worldwide income in India. The number of days one actually spends in India in the relevant financial year and the purpose of leaving India—whether or not for employment should be kept in mind.

—* The writer is executive director,KPMG