TAX NEWS - DECEMber 2009

India tax: Reserve Bank of India relaxes expatriate salary payment rules

Summary

Foreign / Indian nationals employed with a foreign company and on deputation to the office / branch / subsidiary/ joint venture in India can now receive 100% of their salary outside India from their overseas employer subject to the payment of taxes in India. Similarly, foreign nationals who are employed with Indian companies can now remit 100% of their salary to their bank accounts outside India subject to payment of taxes in India.


Key features of the new regulations

Employment with a foreign company – Previously, Foreign/Indian nationals employed by an overseas company and on deputation to the office/branch/subsidiary/joint venture in India could receive only 75% of their salary outside India. This condition created restrictions for the employees. The notification seeks to address this by permitting such employees to receive the entire salary after payment of Indian income-tax in their overseas bank accounts.

Employment with an Indian company – Until now, foreign nationals employed with Indian companies could remit their salary net of statutory deductions outside India for the maintenance of close relatives abroad. The RBI has now removed this requirement, thereby enabling free remittance outside India for any purpose subject to payment of Indian income-tax.


Road ahead

Employers can revisit their salary payment model to expatriates in the light of the new regulations.

Source: Reserve Bank of India Notification No. FEMA 199/2009-RB dated 30th September 2009