Gain insights into the complexities of remote work. Understand tax, social security, and immigration implications, especially for those working remotely from India for foreign companies.
Navigating the Complexities of Remote Work: Understanding Tax, Social Security, and Immigration Implications
Recent environmental changes have led to an increase in distant work and, consequently, in new engagement models. Even if they are employed by a foreign company, many people are working remotely from India. So, it becomes necessary for these people to consider the numerous ramifications from the perspectives of income tax, social security, and immigration. The potential ramifications of working remotely are the main topic of this article. To determine the true ramifications, one must examine each situation individually.
Indian income tax implications:
The scope of taxation is dependent on the residential status of the taxpayer. Residential status of an individual can be one of the following types:
- Resident and Ordinarily Resident (ROR)
- Resident but not Ordinarily Resident (RNOR)
- Non-Resident (NR)
The taxpayer is said to be ‘Resident’ in India for a FY if he is:
- Present in India in that year for a period or periods totaling to 182 days or more; or
- Present in India for at least 60*# days or more during the FY and 365 days or more during the preceding four FY’s.
*For an Indian citizen who leaves India for employment overseas or as a member of the crew of an Indian ship, 60 days are replaced by 182 days.
#For an Indian citizen or person of Indian origin who lives outside of India and visits India, 60 days are replaced by 182 days; however, 60 days are replaced by 120 days if such individual has total income, excluding income from foreign sources, which is greater than INR 1.5 million.
An individual who does not satisfy any of the above conditions is regarded as a NR.
Further, a resident individual is regarded as ROR in India in a FY if he satisfies both the conditions as mentioned below –
- he has been a ‘resident’ in India for two out of the ten FY’s preceding the relevant FY; and
- he has been in India for 730 days or more during the seven FY’s preceding the relevant FY
An individual who does not satisfy both the above conditions simultaneously is regarded as a RNOR.
ROR is taxed on global income in India, including salary, interest, capital gains, and rental income from within India as well as outside India. Double taxation of income in India and other countries may result from this. The relief for foreign tax credit or exclusion of income under the tax agreement between India and the relevant foreign country may be explored, though
NR and RNOR are taxed on only sourced / received / earned income in India i.e., India sourced salary income and other Indian sourced incomes. NR/RNOR can claim the short stay exemption for their short stay in India as per respective tax treaty if they satisfy the relevant conditions. However, important conditions for claiming such exemption include not having Permanent Establishment (PE) of such foreign entity in India and the foreign entity should not be resident in India. PE can be of following types in India due to remote working:
- Fixed Place PE: A fixed place of business where the business of an enterprise is wholly or partly carried on.
- Place of Management PE: A fixed place of business where significant managerial decisions of the enterprise are taken.
- Supervisory / Installation PE: When installation and supervisory activities are carried out by a foreign company for certain period.
- Agency PE: When enterprise carries on business through agent / broker and perform activities which lead to formation of PE as per the respective treaty.
Withholding obligation of employer:
Foreign employer is expected to withhold tax at the proper rates at the time of salary payment and to comply with all applicable withholding tax laws. As a result, the organization paying the salary will need to promptly deposit any taxes withheld from the employees’ salaries that are taxable in India into the government treasury. There is no clause in the Act that relieves a foreign employer of their obligation to withhold tax from salary payments that are subject to Indian tax.
If it is logistically difficult for the employer to comply with withholding requirements, the employee may think about releasing the tax obligation on salary income received for services provided in India through an advance tax mechanism or self-assessment taxes under his PAN. However, this might not relieve the foreign employer of their duty to withhold taxes.
Social security obligations:
The employee would not be required to contribute towards social security (PF in India) in India during the period of his stay in India if he is not working in or in connection with an establishment to which The Employees Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) applies.
Immigration implications:
Indian citizen with valid Indian passport or Indian citizen (who has renounced his citizenship) which holds Overseas Citizen of India (OCI) card can visit India and work remotely for foreign entity. Concept of Nomad Visa does not apply in India.
Author Bio
I’m a NR for AY 23-24. I shifted to India in oct 2022 from USA permanently and doing work from home for US company. What are the tax implications?