Work from home in India for a foreign company? Check how your income will be taxed

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New Delhi: Due to the COVID pandemic, travel restrictions have been imposed by many countries to contain the spread of the virus. Due to this, many Non-Resident Indians (NRIs) who had come to India to visit India were unable to return to their working country and worked for their companies from India.

In addition, many people working in European countries and the United States returned to India and worked from India, although they were employed by a foreign company. Even some foreigners have extended their stay in India due to the pandemic. In such situations, how will the individual’s income be taxed? Let’s understand the tax implications for people who work from India while employed for foreign companies.

It should be mentioned here that in India, the taxation of an individual is determined by their residency status in the country. According to tax laws, an Indian citizen or a person of Indian origin who, has worked in another country and came to India for a visit, will be treated as NOR (ordinary non-resident) in India, if the person remains in India more than 120 days and less than 182 days in the relevant fiscal year and has Indian source income of over Rs 15 lakh during the fiscal year.

According to tax experts, a NOR natural person is only subject to tax on their Indian source income, while a resident natural person is taxable on their worldwide income in India. This means that people residing in India will be required to pay tax on the salary they earn for the services rendered in India and also on the income from outside India such as rental income, income interest, capital gains, etc.

It should be noted that resident natural persons can enjoy relief from double taxation of income in India and the foreign country in accordance with tax treaties signed by India with other countries. However, resident Indians are required to disclose their foreign assets on their income tax return.

As several people were stranded in India due to the pandemic during the previous fiscal year, several representations were made to the Central Commission for Direct Taxes (CBDT) to relax the rules for determining the residence status of these people. , who have unwittingly stayed in India.

The CBDT, after examining the file, had issued a circular on March 3, 2021 on the “Status of residence of certain persons under the Income Tax Act 1961”. Here is what the circular says:

– If a person stays less than 182 days, it will not trigger residency in India.

– There could be a possibility of double non-residency resulting in natural persons not being taxed in any country in the event that a general relaxation is granted to the 182-day rule.

– The salary will therefore be taxable in the country of employment but an exemption may be claimed in India if the necessary conditions are met.

– Also, these people are eligible for foreign tax credit in India on taxes paid abroad.

The CBDT later ruled that people facing double taxation after reviewing tax treaty reliefs should file an application on Form NR by March 31, 2021 to consider whether relief should be granted to that person. or to a category of people. He offered relief to people who inadvertently triggered residency in India due to the pandemic.

Tax experts claim that despite the eases granted by the CDBT, if an individual becomes taxable in India, they must do the following to avoid double taxation:

– Determine with precision the status of residence

– Evaluate the appropriate taxation in India.

– Request the exemption according to the tax treaty, if the prescribed conditions are met.

– If the income is also taxable in the other country, claim the appropriate tax credit.

About Geraldine Higgins

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