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Remote Working can Result in Tax Liability for an NRI and PE Exposure for their Employer

Remote Working can Result in Tax Liability for an NRI and PE Exposure for their Employer

In the corporate and financial sector in India, hither to the coronavirus pandemic, taxation for NRI was not a highly debated subject for various reasons. The coronavirus pandemic has made the global workforce embrace the work from home (WFH) culture. The WFH culture has created many-a-challenges for the organizations who have employed foreign nationals and for the individual who is employed by the global company. With nations closing borders, many employees have returned to their home nation and have continued to work for their foreign company. A huge section of Indians falls in this category. Treated as non-resident Indians (NRIs), on home turf, India, the employees take advantage of lower cost of living here and higher salary as they are paid in foreign currencies. However, one thing that is a cost of concern for such individuals is income tax benefit for NRI. These are a few aspects related to tax that an NRI must have in mind. Here’s taking a closer look at a couple of them.

Residential Status of the respective individual

According to the law of the land, if an individual spends 182 or more days in India, during the respective fiscal year, the person is treated as an ordinary resident for taxation purposes. Furthermore, in the eyes of law, if the individual spends over 60 days in the financial year and if the person has spent over 365 days in India in the previous four fiscal years, the respective individual automatically becomes a resident in India. For individuals who are abroad on work permits, the 60-day rule becomes 182 days. Starting from FY21, for Indians who are drawing an income of over ₹15 lakhs and more, additional taxation for NRI rules apply. It is advised that such individuals seek professional help in determining the residential status. A chartered accountant can offer respite in calculating the income tax for Indian residents working abroad. 

NRIs are eligible to claim TDS deducted from salary

A majority of nations have in place, the Tax Deduction at Source (TDS) system which is similar to India. This means, the TDS is likely to be deducted by the foreign employer, in accordance to the law of land of the respective nation. Based on the Double Tax Avoidance Agreement (DTAA), that is applicable, the individual can claim the deducted TDS, by claiming it as credit, at the time of filing ITR in India. it may be noted that the TDS for the respective financial year, can be deducted by the foreign employer even for an Indian resident. Obtaining a Tax Residency Certificate (TRC) in India can require some countries to prevent the TDS. However, getting a TRC from India is a manual procedure which requires the submission of a physical application to an assessing officer. 

Dealing with the Forex transaction charges 

The subject taxation for NRI has garnered attention considering the fact that foreign companies credit salaries in the foreign bank accounts of their respective workforce. For an NRI to access the money, in India, it must be transferred to an Indian bank account. This process of transferring the money to an Indian bank account or having the salary credited to an Indian bank account automatically becomes taxable in the country. This is regardless of the residential status of the individual. Furthermore, in order to have the money transferred from a foreign bank to an Indian bank account, the individual will have to pay the costs of forex transfers. To seek help in understanding how income tax for Indian residents working abroad works, seek the professional help of an expert or an organisation.