Medical reimbursements are taxable in India
Taxation of employee secondments to India
07/07/2011 | Cross-border employment
by graduate business lawyer (FH) Caroline Klotzek, graduate business graduate Aleksandra Lechowicz and Anne Vater, Berlin
As one of the BRIC countries, India is one of the growth markets of the future. More and more German companies are sending their employees to India and thus to one of the fastest growing economies. Special regulations regarding the posting process of employees, which arise from both national tax law and treaty law, must be observed.
1. Tax liability in India
Like German tax law, Indian tax law recognizes the distinction between limited and unlimited tax liability. The tax liability of natural persons is decided on the basis of the place of residence or residence status and not on the basis of nationality. The following overview presents the different types of residence in India:
Type of residence in national tax law
Resident and ordinarily resident
1. Stay in India for at least 182 days in the tax year or
2. Stay in India for at least 60 days in the tax year and for a total of at least 365 days during the last 4 tax years; also
Unlimited tax liability with world income
3. Residency in India for 9 out of 10 previous years OR
4. Stay of at least 730 days in the previous 7 tax years
Resident but not ordinarily resident
Condition 1 or 2 of ROR met, but conditions 3 and 4 are not met
Limited tax liability with income from Indian sources, additionally also from foreign sources, insofar as the business is controlled or controlled from India
None of the basic conditions mentioned above for ROR are met
Limited tax liability on income from Indian sources
Employees who are posted to India for the first time are usually considered to be RNOR for the first two to three years. For example, if an employee arrives on January 1, 2001 and leaves the country on November 30, 2002, it is less than 730 days in total and is therefore considered an RNOR. If he stays in India for a short time, for example for one month per year, the employee is also considered an RNOR, since 60 days in the tax year and 365 days in four years are not achieved.
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