International Tax for Expatriates Working in India

You moved to India for a 3-year project. Your salary is paid partly in your home country and partly in India. Your home country is asking why you stopped paying tax there. The Indian tax department is asking why you have not registered yet. Welcome to international taxation.

Expatriates working in India face a tax landscape that depends on three things: residency status, source of income, and the relevant treaty between India and your home country. Get those three right, and the rest is paperwork.

Residency: the first question that decides everything

Indian tax law has three residency categories. Your category determines what gets taxed in India.

• Resident and ordinarily resident (ROR): taxed on global income.
• Resident but not ordinarily resident (RNOR): taxed on Indian source income plus business income controlled from India.
• Non-resident (NR): taxed only on Indian source income.

The residency rules are based on physical days spent in India. Stay 182 days or more in a financial year and you are resident. Stay 60 days plus 365 days across the prior 4 years and you are also resident (with some carve-outs for citizens leaving for employment abroad).

RNOR is the friendliest status for an inbound expatriate. You qualify if you have been a non-resident in 9 out of the prior 10 years, or you have spent fewer than 729 days in India in the prior 7 years. Most fresh expatriates land in RNOR for the first 2 years.

What gets taxed for an RNOR expatriate

RNOR is generous because foreign-source income (interest from a US bank account, dividends from a UK fund, capital gains on foreign stocks) is not taxed in India unless the income is controlled from India.

What is taxed:

• Salary received in India or for services rendered in India.
• Rent from Indian property.
• Capital gains on Indian investments.
• Bank interest on Indian accounts.

What is NOT taxed during RNOR:

• Dividends, interest, and capital gains from foreign assets.
• Salary credited overseas for services rendered overseas.
• Income from a foreign business not controlled from India.

Salary structure for inbound expatriates

The mechanics of how your salary is paid affect your tax liability.

If your global employer pays in your home country and you spend less than 90 days in India under a tax treaty, the salary may be exempt from Indian tax. The 90-day rule is treaty-specific — some treaties allow up to 183 days.

If you stay longer or your contract says you are deputed to an Indian entity, the entire salary related to Indian work becomes taxable in India regardless of where it is credited.

A common arrangement is the "split payroll":

• Part of the salary credited in India for local expenses.
• Part of the salary credited abroad to maintain an offshore lifestyle.

Both parts are taxable in India once you cross treaty thresholds. The split is a cash flow tool, not a tax shelter.

The double taxation avoidance agreement (DTAA)

India has signed treaties with over 90 countries. The treaty does two things: it decides which country gets first taxing right, and it lets you claim a credit in your home country for tax paid in India (or vice versa) so the same income is not taxed twice.

Two main relief methods:

• Exemption method: the home country exempts foreign income altogether.
• Credit method: the home country taxes the income but gives credit for tax paid in India.

The credit method is more common. To claim it, you need a Tax Residency Certificate (TRC) from your home country. Without a TRC, you usually cannot get treaty benefits in India and you may be taxed at higher domestic rates.

Common deductions and exemptions for expatriates

Several Indian tax provisions are useful for expatriates:

• House Rent Allowance (HRA): partial exemption if you live in rented housing in India.
• Leave Travel Allowance (LTA): exempt up to limits for travel within India.
• Daily allowance: certain per-diem allowances are exempt up to specified amounts.
• Section 80C: available even for non-residents, with restrictions on instruments such as PPF.
• Education and medical allowances: available within prescribed limits for children's tuition.

The exact applicability depends on your residency status and whether you are taxed under the old or new regime. Most expatriates pick the old regime because the deductions outweigh the lower slab rates of the new regime.

Mandatory compliance steps

1. Apply for a Permanent Account Number (PAN) within 30 days of arrival.
2. Register with the Foreigners Regional Registration Office (FRRO) if your stay exceeds 180 days.
3. File an Indian tax return (ITR-2 or ITR-3) every year you are resident, even if all tax is paid through TDS.
4. Disclose foreign assets in Schedule FA if you become an ROR.
5. Get a TRC from your home country to claim DTAA benefits in India.

The full set of forms and the Foreign Tax Credit application are documented on the Income Tax Department portal.

Pitfalls that catch expatriates

• Forgetting that the financial year in India is April to March, not the calendar year. Treaties usually align to calendar year, which creates apportionment headaches.
• Not getting the TRC before salary is paid. Without it, treaty rates do not apply at withholding stage.
• Keeping foreign bank accounts open without disclosure once you become ROR. Schedule FA is mandatory and penalties for non-disclosure are severe.
• Mixing personal foreign investments with employer-granted RSUs. The tax treatment differs at vesting and at sale.
• Underestimating Indian capital gains rules for long-held foreign assets that are sold during the Indian residency window.

International tax for expatriates is not unbearable, but it is unforgiving. The two-year RNOR window is your best friend — use it wisely. Keep your TRC, your day count, and your payroll structure clean from day one, and you avoid 80 percent of the painful surprises that hit expatriates in their second year.