Guys
sorry for the duplicate thread, i had posted this earlier in non-r2i forum.
I work for company A and am planning to be in India continuing to work for company A. We currently do not have a office in India and basically i am going to be working towards setting this and getting a center started in India. This period will be a max of 6 months.
My company will pay me my USD salary and expenses for my trip to India and my stay there. I would like to know how my taxes would work ? Is there a way to save some taxes here. Please let me know if you have any information OR have been in this situation before.
Dual Taxation - Working in India but Employed with US company
Dual Taxation - Working in India but Employed with US company
Indian Domestic Tax Law Position
If work is done in India, even if employer is based in Uranus, employee is resident of Pluto, citizen of Neptune and gets paid in Jupiter in Martian currency, the salary is taxable by GOI. So the key is whether work was performed in India or not. It does not matter whether employee sits at a terminal in an India hill station and does his/her work or works in an office in Nariman Point.
US-India Tax Treaty Position (supercedes and overrides Indian domestic law above, if US-India Tax Treaty provisions are met):
If all (not just one or two) of the following conditions are met, then per Article 16 of the treaty, salary for work done in India is not taxable by GOI:
(i) Employee is resident of US per the India-US tax treaty and employer is not a resident of India.
(ii) Employee's salary is not borne by a permanent establishment in India of the employer - this means that when the India permanent establishment of the firm files its India business tax return it should not claim the salary as an expense for tax purposes. If employee gets paid in US by the US employer, but the India branch/permanent establishment is charged for the salary by the US office, then this condition is not met.
(iii) Employee's stay in India does not exceed 183 days during the relevant Indian financial year which runs April 1 to March 31.
Followup questions, if any, will be answered if all info about the specific situation is provided. If in doubt about whether some info is relevant, disclose the info. Doing so will avoid the cost and effort involved in multiple iterations to get info.
If work is done in India, even if employer is based in Uranus, employee is resident of Pluto, citizen of Neptune and gets paid in Jupiter in Martian currency, the salary is taxable by GOI. So the key is whether work was performed in India or not. It does not matter whether employee sits at a terminal in an India hill station and does his/her work or works in an office in Nariman Point.
US-India Tax Treaty Position (supercedes and overrides Indian domestic law above, if US-India Tax Treaty provisions are met):
If all (not just one or two) of the following conditions are met, then per Article 16 of the treaty, salary for work done in India is not taxable by GOI:
(i) Employee is resident of US per the India-US tax treaty and employer is not a resident of India.
(ii) Employee's salary is not borne by a permanent establishment in India of the employer - this means that when the India permanent establishment of the firm files its India business tax return it should not claim the salary as an expense for tax purposes. If employee gets paid in US by the US employer, but the India branch/permanent establishment is charged for the salary by the US office, then this condition is not met.
(iii) Employee's stay in India does not exceed 183 days during the relevant Indian financial year which runs April 1 to March 31.
Followup questions, if any, will be answered if all info about the specific situation is provided. If in doubt about whether some info is relevant, disclose the info. Doing so will avoid the cost and effort involved in multiple iterations to get info.
Dual Taxation - Working in India but Employed with US company
Bobus
Thanks for your response.
1. I will be working out of India for my US based company. My company does not have any India office or branch in India. - So I agree that technically all my US based income is taxable by GOI. I will be working from our partners location and the partner is an Indian company. However the partner does not pay any salary or any income to me nor is it going to charge our company anything for me.
As per the tax treaty, these conditions need to be met
(i) Employee is resident of US per the India-US tax treaty and employer is not a resident of India.
I plan on keeping my US apartment and everything else. Also i have a green card. I will be gone for about 5 months. Hence i think i am a US resident. Right ?
(ii) Employee's salary is not borne by a permanent establishment in India of the employer - this means that when the India permanent establishment of the firm files its India business tax return it should not claim the salary as an expense for tax purposes. If employee gets paid in US by the US employer, but the India branch/permanent establishment is charged for the salary by the US office, then this condition is not met.
Since my company does not have an establishment in India, this condition does not apply to me. My salary is borne by my company in US and there is no Indian branch which will be charged for this. So i think i meet this condition.
(iii) Employee's stay in India does not exceed 183 days during the relevant Indian financial year which runs April 1 to March 31.
My stay will not excced 183 days for sure.
Bobus, Based on the above information i am assuming i do not need to pay any GOI tax. However is there any paperwork i need to do. Can i minimize my US based tax somehow. OR shouldi keep things simple and pay tax as i usually do every year.
Thanks for your response.
1. I will be working out of India for my US based company. My company does not have any India office or branch in India. - So I agree that technically all my US based income is taxable by GOI. I will be working from our partners location and the partner is an Indian company. However the partner does not pay any salary or any income to me nor is it going to charge our company anything for me.
As per the tax treaty, these conditions need to be met
(i) Employee is resident of US per the India-US tax treaty and employer is not a resident of India.
I plan on keeping my US apartment and everything else. Also i have a green card. I will be gone for about 5 months. Hence i think i am a US resident. Right ?
(ii) Employee's salary is not borne by a permanent establishment in India of the employer - this means that when the India permanent establishment of the firm files its India business tax return it should not claim the salary as an expense for tax purposes. If employee gets paid in US by the US employer, but the India branch/permanent establishment is charged for the salary by the US office, then this condition is not met.
Since my company does not have an establishment in India, this condition does not apply to me. My salary is borne by my company in US and there is no Indian branch which will be charged for this. So i think i meet this condition.
(iii) Employee's stay in India does not exceed 183 days during the relevant Indian financial year which runs April 1 to March 31.
My stay will not excced 183 days for sure.
Bobus, Based on the above information i am assuming i do not need to pay any GOI tax. However is there any paperwork i need to do. Can i minimize my US based tax somehow. OR shouldi keep things simple and pay tax as i usually do every year.
Dual Taxation - Working in India but Employed with US company
Based on info given, you meet the conditions specified in Article 16 of the tax treaty and your salary for work done in India will be exempt from GOI tax.
Regarding paper work, I feel the appropriate procedure is to file an India tax return, disclose the salary for work done in India on the return, and claim exemption from GOI tax by citing Article 16 of the India-US tax treaty on the return and explaining clearly why and how you meet the conditions specified in the Article. To be sure, check with Rajesh or a good Indian CA.
http://www.irs.gov/pub/irs-trty/india.pdf
Regarding US tax, as a US resident you are liable to US tax on global income. So your salary for work done in India is taxable by Uncle Sam. Based on info given, you are not eligible for the foreign earned income exclusion. To be eligible, you have to meet either the bonafide residence test or physical presence test, and based on info given, you do not meet either test.
http://www.irs.gov/businesses/small/international/article/0,,id=97130,00.html
Regarding paper work, I feel the appropriate procedure is to file an India tax return, disclose the salary for work done in India on the return, and claim exemption from GOI tax by citing Article 16 of the India-US tax treaty on the return and explaining clearly why and how you meet the conditions specified in the Article. To be sure, check with Rajesh or a good Indian CA.
http://www.irs.gov/pub/irs-trty/india.pdf
Regarding US tax, as a US resident you are liable to US tax on global income. So your salary for work done in India is taxable by Uncle Sam. Based on info given, you are not eligible for the foreign earned income exclusion. To be eligible, you have to meet either the bonafide residence test or physical presence test, and based on info given, you do not meet either test.
http://www.irs.gov/businesses/small/international/article/0,,id=97130,00.html
Dual Taxation - Working in India but Employed with US company
Bobus;9605Indian Domestic Tax Law Position
If work is done in India, even if employer is based in Uranus, employee is resident of Pluto, citizen of Neptune and gets paid in Jupiter in Martian currency, the salary is taxable by GOI. So the key is whether work was performed in India or not. It does not matter whether employee sits at a terminal in an India hill station and does his/her work or works in an office in Nariman Point.
US-India Tax Treaty Position (supercedes and overrides Indian domestic law above, if US-India Tax Treaty provisions are met):
If all (not just one or two) of the following conditions are met, then per Article 16 of the treaty, salary for work done in India is not taxable by GOI:
(i) Employee is resident of US per the India-US tax treaty and employer is not a resident of India.
(ii) Employee's salary is not borne by a permanent establishment in India of the employer - this means that when the India permanent establishment of the firm files its India business tax return it should not claim the salary as an expense for tax purposes. If employee gets paid in US by the US employer, but the India branch/permanent establishment is charged for the salary by the US office, then this condition is not met.
(iii) Employee's stay in India does not exceed 183 days during the relevant Indian financial year which runs April 1 to March 31.
Followup questions, if any, will be answered if all info about the specific situation is provided. If in doubt about whether some info is relevant, disclose the info. Doing so will avoid the cost and effort involved in multiple iterations to get info.
We are returning to India in June 2007 and my husband's company is willing to let him work from India and pay the salary in USD. There is no office in India. He will be working from home. He is currently on H1B. Haven't applied for GC. From the thread above it looks like he will be taxed in India? Is there some way he can avoid taxation in the US?
Dual Taxation - Working in India but Employed with US company
We are returning to India in June 2007 and my husband's company is willing to let him work from India and pay the salary in USD. There is no office in India. He will be working from home. He is currently on H1B. Haven't applied for GC. From the thread above it looks like he will be taxed in India? Is there some way he can avoid taxation in the US?
June 2007 return (not temp stay) means stay will exceed 183 days in the relevant Indian financial year - so tax treaty will not come to the rescue and help avoid GOI tax on work done in India.
I note however that your question is about US tax, not India tax, on the salary for work done in India which is India source income (coz work is done in India) even though paid in USD in US or elsewhere. In so far as US tax is concerned, if a non GC holder and non USC person meets the substantial presence test in any year US tax year, then he is US resident for tax purposes for that year, unless a closer connection to a foreign country can be shown. A US resident for tax purposes is subject to US tax on global income (income from all sources). There are 3 options that can be pursued:
(a) Show closer connection to India (not advised)
(b) Claim the foreign earned income exclusion that is allowed under US tax law.
(c) Claim credit for taxes paid to GOI when filing US tax return.
Choice between (b) and (c) - which one is more desirable - depends on specifics of the case.
On a related note, there is a FEMA (India) regulation that stipulates that where work is done in India, a max of 75% of salary can be paid outside India in foreign currency. So even if US company is willing to pay 100% salary in USD outside India, it is better to check whether FEMA permits it.
June 2007 return (not temp stay) means stay will exceed 183 days in the relevant Indian financial year - so tax treaty will not come to the rescue and help avoid GOI tax on work done in India.
I note however that your question is about US tax, not India tax, on the salary for work done in India which is India source income (coz work is done in India) even though paid in USD in US or elsewhere. In so far as US tax is concerned, if a non GC holder and non USC person meets the substantial presence test in any year US tax year, then he is US resident for tax purposes for that year, unless a closer connection to a foreign country can be shown. A US resident for tax purposes is subject to US tax on global income (income from all sources). There are 3 options that can be pursued:
(a) Show closer connection to India (not advised)
(b) Claim the foreign earned income exclusion that is allowed under US tax law.
(c) Claim credit for taxes paid to GOI when filing US tax return.
Choice between (b) and (c) - which one is more desirable - depends on specifics of the case.
On a related note, there is a FEMA (India) regulation that stipulates that where work is done in India, a max of 75% of salary can be paid outside India in foreign currency. So even if US company is willing to pay 100% salary in USD outside India, it is better to check whether FEMA permits it.
Dual Taxation - Working in India but Employed with US company
To get relief from Foreign Earned income exclusion you should have lived outside US for 330 days in the calendar year. Check conditions for Tax home test or physical presence test required to be eligible for F.E.I Exclusion.
Those who return after Feb-6th most likely NOT get F.E.I Exclusion. But they may be eligible from next year.
Those who return after Feb-6th most likely NOT get F.E.I Exclusion. But they may be eligible from next year.
Dual Taxation - Working in India but Employed with US company
Bobus;19402We are returning to India in June 2007 and my husband's company is willing to let him work from India and pay the salary in USD. There is no office in India. He will be working from home. He is currently on H1B. Haven't applied for GC. From the thread above it looks like he will be taxed in India? Is there some way he can avoid taxation in the US?
June 2007 return (not temp stay) means stay will exceed 183 days in the relevant Indian financial year - so tax treaty will not come to the rescue and help avoid GOI tax on work done in India.
I note however that your question is about US tax, not India tax, on the salary for work done in India which is India source income (coz work is done in India) even though paid in USD in US or elsewhere. In so far as US tax is concerned, if a non GC holder and non USC person meets the substantial presence test in any year US tax year, then he is US resident for tax purposes for that year, unless a closer connection to a foreign country can be shown. A US resident for tax purposes is subject to US tax on global income (income from all sources). There are 3 options that can be pursued:
(a) Show closer connection to India (not advised)
(b) Claim the foreign earned income exclusion that is allowed under US tax law.
(c) Claim credit for taxes paid to GOI when filing US tax return.
Choice between (b) and (c) - which one is more desirable - depends on specifics of the case.
On a related note, there is a FEMA (India) regulation that stipulates that where work is done in India, a max of 75% of salary can be paid outside India in foreign currency. So even if US company is willing to pay 100% salary in USD outside India, it is better to check whether FEMA permits it.[/quote]
Thanks for your reply. I have two questions. In so far as US tax is concerned, if a non GC holder and non USC person meets the substantial presence test in any year US tax year, then he is US resident for tax purposes for that year, unless a closer connection to a foreign country can be shown Does this mean that for the year 2008 he doesn't have to pay US taxes because he would be residing in India throughout the year.
Can you please point me to the FEMA India regulation? A link to that site would be great.
Dual Taxation - Working in India but Employed with US company
To get relief from Foreign Earned income exclusion you should have lived outside US for 330 days in the calendar year. Check conditions for Tax home test or physical presence test required to be eligible for F.E.I Exclusion. Those who return after Feb-6th most likely NOT get F.E.I Exclusion. But they may be eligible from next year.
#8 RRK: What you are refering to is the physical presence test. To meet that test the 12 month period need not be the calendar year. A US resident for tax purposes who goes to India to work starting even from say July (and continuing to reside there for at least 330 days) can claim the FEI on salary for work done in India from July to Dec of that year.
http://www.irs.gov/businesses/small/international/article/0,,id=96980,00.html
Extract
Physical presence test
Under the physical presence test, a 12-month period can be any period of 12 consecutive months that includes 330 full days. If you qualify under the physical presence test for part of a year, it is important to carefully choose the 12-month period that will allow the maximum exclusion for that year.
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#9 sugr2i:
Does this mean that for the year 2008 he doesn't have to pay US taxes because he would be residing in India throughout the year.
If he is
(a) not GC holder
(b) not USC
(c) not married to GC holder or USC and electing to file MFJ with such spouse.
(d) Does not meet the substantial presence test in 2008 (less than 31 days in US in 2008)
he will be non-resident alien (NRA) for US tax purposes in 2008.
NRA is subject to US tax on US source income only and salary for work done in India is not US source income.
Can you please point me to the FEMA India regulation? A link to that site would be great.
http://www.rbi.org.in/scripts/BS_FemaNotifications.aspx?Id=2599
#8 RRK: What you are refering to is the physical presence test. To meet that test the 12 month period need not be the calendar year. A US resident for tax purposes who goes to India to work starting even from say July (and continuing to reside there for at least 330 days) can claim the FEI on salary for work done in India from July to Dec of that year.
http://www.irs.gov/businesses/small/international/article/0,,id=96980,00.html
Extract
Physical presence test
Under the physical presence test, a 12-month period can be any period of 12 consecutive months that includes 330 full days. If you qualify under the physical presence test for part of a year, it is important to carefully choose the 12-month period that will allow the maximum exclusion for that year.
--------------------
#9 sugr2i:
Does this mean that for the year 2008 he doesn't have to pay US taxes because he would be residing in India throughout the year.
If he is
(a) not GC holder
(b) not USC
(c) not married to GC holder or USC and electing to file MFJ with such spouse.
(d) Does not meet the substantial presence test in 2008 (less than 31 days in US in 2008)
he will be non-resident alien (NRA) for US tax purposes in 2008.
NRA is subject to US tax on US source income only and salary for work done in India is not US source income.
Can you please point me to the FEMA India regulation? A link to that site would be great.
http://www.rbi.org.in/scripts/BS_FemaNotifications.aspx?Id=2599