Taxation

Income tax in India

Everybody seeking employment in India needs to get a PAN Card (Personal Account Number Card). This is not only useful in everyday visits to the authorities but also a precondition to start working in India.

The Personal Account Number in India can roughly be compared with the social security numbers of western countries. It is issued by the Indian Tax Department and your employer has to state it for every salary payment.

Applying for a PAN Card is easy. Usually your employer will help you providing all necessary forms. You can apply on-line or in person. In both cases you will have to pay a fee of around Rs90.

If you apply yourself you should do so on-line since web-based applications are treated as urgent. You only need to fill in the forms at www.tin-nsdl.com  but still have to send a print out copy to an IT PAN Service Centre in your area. The locations of local service centres can be found at www.tin-nsdl.com/pan.php. 

You will also need to provide further documents, including proof of identity, proof of address in India and a passport-sized photograph. After one week you should receive your card in the mail.

If you apply at an IT PAN Service Centre the entire process takes significantly longer and you will receive your PAN Card via mail within a month.

Whether you apply through your company, on-line or in person, your passport with your valid Indian visa serves as your proof of identity. Your proof of address can be nearly anything: your utility bill, a bank statement, or a letter from your employer giving information about housing provided by the company.

Income Tax in India

Income in India is progressive. The first Rs110,000 are tax exempt. This exemption is higher for women (Rs145,000) and people older than 64 years (Rs195,000).

Any additional income will be taxed in brackets of 10- 30%, depending on total income. For all salaries higher than Rs1,000,000 there is an extra charge of 10% on the tax amount. A three percent education charge is due on the total tax payment as well.

Since Fringe Benefits Tax is lower than the Income Tax, your company will probably declare some of your monthly income as benefits.

Tax refunds for government investment schemes

Another way of avoiding high tax payments is investing in government approved investment schemes, which are offered by major Indian companies. Often Indian banks work together with these companies and offer investment funds, that reduce the amount of paperwork for you. However, you should still contact the company you are going to invest in to ask about details of the investment. Many offers are not available to foreigners.

Once you have chosen an offer you will usually have to invest around Rs100,000. After making a tax declaration (due by the end of July), you'll receive tax refunds.

Be aware that your investment will be locked for three years. If you stay in India for less than three years this option is not recommended since there is a lot of paperwork needed to get your investment back. You might even need to fly back to India for final arrangements, in which case the amount of money you saved might be less than the cost of a trip to India.

To find out more about tax relief and incentives offered to expatriates in specialized sectors, visit www.incometaxindia.gov.in .


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