Global employee movements allow companies to deploy resources outside the home country and provide opportunities for professional growth to employees as well. Globally mobile individual taxpayers, who may have business connections or income accruals in different jurisdictions pursuant to overseas assignments, are required to critically examine the impact of inter country movement on multi-jurisdiction tax, immigration, and other related matters.
The Indian government has eased certain tax compliances and provided relaxation from time to time such as exclusion of stay days in India for determining residential status during the period of COVID-19, etc. Though the framework of Double Tax Avoidance Agreement (DTAA) entered with various countries helps avoid potential double taxation arising due employee movement across jurisdictions, however, the payment obligations for taxpayers and various other issues arising out of the global movements are yet to be addressed.
Let us look at some of the practical situations which arise on account of global movement of an employee, and the expectations from the upcoming budget to simplify the taxation provision in such cases.
Relaxation in stay days for determination of residential status
As per the current provisions, in case an employee is moving out of India for the purpose of taking up employment after September (i.e., stay days in India during the financial year exceeds 181 days), he /she ends up qualifying as tax resident of India and liable to tax on the global income in India.
Many times, the 181 days threshold is exceeded by taxpayers on account of delay in visa/immigration, assignment planning, business reasons, etc. Therefore, the government may consider extending the no. of days threshold for individuals leaving for employment.
Alternatively, the residency related provisions may be amended to the effect that the employee is considered as a Non-Resident from date of starting foreign employment and accordingly income from employment exercised in host country is taxable in the host country itself
This would help employees to plan their movement outside to mitigate the complex tax issues due to inclusion of foreign income and related compliances.
Difference in tax accounting periods
In India, the fiscal year is followed i.e.,1 April to 31 March of the next year whereas other countries have their own accounting periods mostly as calendar year. Due to the difference in accounting periods, there can be situations wherein the credit of foreign taxes paid and then claimed in India basis paystubs or estimations may get reduced once the final tax liability in host country is determined at the time of filing the tax return.
This results in a tax payable situation in India along with the interest. Thus, the government should relook the applicable provisions and provide an opportunity to taxpayers to include income relating to the accounting period in India.
Such amendment of reporting foreign assets in India basis the accounting year of foreign country has already been introduced in the India tax return forms.
Revised tax return timelines
Government may reconsider the timelines for revision of tax returns in India to facilitate taxpayers to revise their India tax returns after filing the overseas tax returns or provide an option to employees who are moving outside the home country for the purpose of taking the employment or coming back to India after completing the assignment, with the extended timeline for filing the Indian tax return.
Also, employees shall be allowed to change the foreign tax credit (FTC) claims during the assessment proceedings on receipt of actual documents from foreign jurisdictions. This would help in addressing issues faced by the individuals due to differences in tax return filing timelines between the nations.
Challenges related to claim of foreign tax credit against the foreign salary earned
In cases of overseas assignment, an individual who qualifies as a tax resident of India is subject to tax in both (host and home) countries. However, no mechanism is notified to claim the credit of taxes paid in foreign
country at the withholding stage wherein the employer can consider the credit of taxes paid/withheld outside India at the time of payment of taxable salary.
Therefore, the employers refrain from reporting the foreign salary and tax credit in the Form 16 which results in a tax payable situation along with levy of interest. By notifying the procedure for claiming the credit of foreign tax paid at the withholding stage, the challenge faced by taxpayers to claim the credit of taxes at the time of filing the return would get resolved.
Simplified income tax return forms and extending the benefit of rebate u/s 87A
To promote ease of tax compliances, the government may re-introduce simplified tax return forms for NRIs who have no capital gains or business/ professional income in India or having income within specified threshold limits. Presently, the simplified tax return forms i.e., ITR 1 Sahaj and ITR 4 (for presumptive income) is for tax residents only. Also, providing the benefit of section 87A to NRI would be a noteworthy move.
Rationalisation of provisions of advance tax
Advance tax applies to all taxpayers, whose total tax liability during the financial year is ₹10,000 or more after considering the benefit of tax deducted at source during the said financial year. Advance tax is payable during the year in four instalments. The interest rates chargeable under section 234A, 234B and 234C are a significant part of the direct tax revenues earned by the government.
It is relevant to note that the salaried individuals are subject to tax on the global income (India + Foreign) in India when they qualify as tax resident in India, and they end up paying the interest on their foreign income as well.
It becomes difficult for employees to estimate the foreign income at the time of paying the advance tax in various scenarios like assignment proposed during the latter part of financial year, estimation of taxable income in overseas countries and taxes paid thereon for FTC purpose in India, etc. Accordingly, the employee fails to discharge the advance tax liability within the given timeline or on the actual income.
Therefore, it is expected that the government should rationalise the provisions of advance tax to mitigate the levy of interest. The advance tax provisions should become the applicable basis the time-period in which the income earned is by the individuals like in case of dividend, capital gains, etc.
Simplifying the provisions related to taxation of global income would be a welcome move by the government which would ease compliance for global mobile individuals.
Akhil Chandna, Partner and Sarthak Prashar, Manager at Grant Thornton Bharat LLP