Moving countries for work is often challenging. Coming to terms with a new tax system is one of the significant factors contributing to this challenge. With COVID19 seems to be taking a back seat, countries are now opening and welcoming mobility of employees with open arms. The movement of employees to and from India looks positive and the announcements made by the Honorable Finance Minister in Union Budget 2023 will boost this further. India is a hot investment destination. Foreign investors always prefer a simple, transparent and economical revenue system which also lays foundation stone for growth of any economy. Government’s measures in the past have resulted in simplicity and ease of compliance. It really felt proud to hear our Finance Minister mentioning reduction of average processing period of filed returns from 93 days to mere 16 days and 45% of the returns getting processed within 24 hours while processing about 6.5 crore returns this year. Not sure if any other country may boast of such a feat! With the elevated use of technology, artificial intelligence, information sharing agreements between countries, detailed disclosure requirements in the return etc., the Government has opened floodgates for more movement of expatriates into India.
Change in tax rates
It is a well-known fact that the expatriates coming to work in India mostly belong to C-suite category and are one of the highest contributors of tax revenue for the Government. While last couple of Budgets saw some unfriendly proposals for them, be it taxing aggregate of employer’s contribution towards Provident Fund (PF), superannuation fund and National Pension System (NPS) exceeding Rs. 7.5 lacs per annum as a perquisite along with any accretion on such excess contribution or taxing interest on employee’s contribution towards PF exceeding Rs. 2.5 lacs. This was an additional burden on the employers’ as they already have to contribute PF for expatriates on their entire compensation.
This Budget did cheer up the expatriates up with introduction of standard deduction of ₹50,000 and reduction of peak surcharge rate from 37% to 25% under the New Personal Tax Regime (“NPTR”). As a result, they will enjoy a reduction of maximum marginal rate from 42.74% to 39% where income exceeds ₹5 crore. Interestingly, the impact of these proposals will have a multiplier cost savings impact (as most of the employers pick up personal taxes for their seconded expatriate employees) on account of:
- applicability of the reduced surcharge rate on their income which is less than ₹5 crore since the effective rate is reduced overall by 3.74%
- Lesser gross up impact of taxes on the expatriates who are tax equalized in India i.e., taxes for them are borne by employer
The above will prove to be a boon for companies as the cost of these employment arrangements will significantly go down.
Timelines for assessment
The returns picked up for scrutiny by the tax authorities do create a panic for any taxpayer, especially the expatriates. The detailed questionnaire issued by the department takes a long time for individuals to collate data and information to be filed with the authorities. The proposal to extend time limit for completing such scrutiny assessments from 9 months to 12 months (for cases other than updated tax return) do provide some breathing room for taking care of such proceedings.
While the Budget 2023 brought positive feel and big smiles on the faces of all cross sections of the society including the globally mobile employees who have a lot of takeaways. With ease of doing business in India, the companies aim to grow their business and thereby more individuals hopping in and outside India. However, the current Budget missed to address following important related aspects:
- Extension of due date of filing revised return as expatriates claim foreign tax credit (FTC) based on their home country tax returns which becomes practically impossible with the current due date of revised returns in India
- e-payment of taxes restricted to specified banks only
- An alternative mechanism of filing and subsequent e-verifying Form 67 (form being filed to claim FTC)
- An extended timeline for procuring Tax Residency Certificate (TRC)
If India has to see continued high in-flow of expatriates, then the above practical challenges faced by them needs a quick resolution by the Government.
(Views are personal)
By: Ravi Jain, Partner, Vialto Partners
With inputs from Manavi Gupta, Associate Director, Vialto Partners
Download The Mint News App to get Daily Market Updates.
More
Less
For all the latest world News Click Here
