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| *Ostroff, Fair and Company>>>India Taxes |
What is the tax situation like for an American Company sending an employee to India? |
Would it be more beneficial for an American Company to create a local company in India in order to pay taxes and all the other legal hassles to it's employee or should they just continue to pay American taxes? My husband's company is thinking of sending him to India and they were wondering what the best way to go about that would be. Would they have to pay Indian taxes too? Please note following points : 1. There is double taxation agreement between India and USA .Hence the taxation issues have to be decided as per the agreement. 2. As per Section 9 of the Income TAx Act of India , salary of Non-Resident is taxable in India as it is deemed to be accrued in India if IT IS EARNED in India. The relevant portion of the Act is given below : (ii) income which falls under the head "Salaries", if it is earned in India. Explanation.---For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for--- (a) service rendered in India; and (b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, shall be regarded as income earned in India. The point is to interpret the term EARNED in India which is debatable. Your query lacks many details e.g what will be his exact work., whetehr company will start a new company in India where he will be employed or company will have any joint venture etc . Residential status effects the taxation in India.IF your husband stays in India for less than 182 days in first year of employment, he will be treated as Non-Resident and as such .IF SALARY is paid in USA by the US company, he will not have to pay the tax in India.Its like you are working in USA only.But this is only true if the job he will be doing in India should not put him in bracket of Income EARNED in India. . For any query by the US company, they should visit govt site www.incometaxindia.gov.in and specially they can seek the answer from the Authority on Advance Ruling for any query regarding taxation issues by a foreign company.They should also read Double taxation agreement between India and US. As you know, the Income TAx law world over is anythig but simple! Source(s): Keep checking my blog (http://q4tax.blogspot.com/) which I have just started .Starting topic, I shall cover will be FAQ on Residential status and its effect on taxation. Please wait for a day or Two. You should really consult with a CPA or tax attorney about this. Foreign taxes and operations are very complex issues and you should seek the advice of an experienced professional. Do you need to send an American to India or can you hire a local employee? What type of equipment, environment and services will the employee need to efficiently perform their duties there? If you need to senfd someone there, there is no sense in creating a whole new operation in India, as you will have to pay the expenses and over head of setting up shop there. If you are going to send someone to another country, they will still have to pay income taxes in the US, as they earn theirmoney from a US based company. As far as paying taxes in the other country, you need to check with the local government to find out what the limits are on income taxes from an overseas company. Chances are that if they are there on a temporary basis, they will be exempt from local income taxes. An individual on deputation to India who is a salaried employee, the tax withholding obligation is set on ' any person responsible for paying salary'. Hence, the American Company will have to discharge the withholding taxes obligations in india. On the other hand, if the American Company has a subsidiary / branch office in India, the said entity can also comply with the tax obligations in the capacity of ' economic employer'. After considering the 'residential status' in India, the tax withholding in US can be stopped and the applicable taxes could directly be credited to India tax authorities. Please note that certain compliance practice required to be complied with. |
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