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Foreign Investors Forum For Rationalisation Of Tax Norms For Foreign Nationals Living In India
The government can provide an exception for foreign domiciled individuals working or living in India under section 6 of the Indian Income Tax Act on lines of similar provisions in other economies for attracting FDI to India
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The Foreign Investors India Forum has urged the government to relax tax provisions for foreign nationals working in India and align them with similar provisions in countries like Singapore and China, in a bid to attract investment and encourage high-flying corporate executives and fund managers having overseas incomes to stay in the country.
Under the current Income Tax provisions, the global income of foreigners is taxed if they stay in India for more than 182 days in a year, thus increasing their personal tax liability in the country. This provision acts as disincentive for foreign nationals, having global income, to stay in India for longer periods.
A letter in this regard was written by Foreign Investors India Forum's Global Chairman B K Modi to Prime Minister Narendra Modi who has referred the matter to the Commerce Ministry for further consideration. The Ministry is reported to have taken up the issue with the Finance Ministry.
India, according to the Forum, needs ingenious global partnerships and heavy investments from new partners of growth which can only happen when the government creates a more enabling tax regime and a progressive personal taxation structure.
Although foreign domiciled individuals residing in India can avail treaty relief in double taxation on non-Indian incomes, challenges like paying higher taxes, availing tax credit benefits, subjectivity in tax assessments and risk arising due to reporting requirements may arise.
The pace of economic growth can be accelerated by increasing the rate of FDI in India and for this, foreigners need to be incentivised to live and invest in India, it said. Foreign citizens must be allowed to tend to their investments and stay in India for long periods. It is recommended that the personal taxation policy for such people must be reviewed and they should be taxed only on any income that is generated domestically in India, the Forum said.
This can increase the tax liability and compliance burden of an individual depending on the effective tax that has to be paid on income not sourced from India. Therefore, foreign individuals do not have enough incentives to invest in India as they cannot come and stay in India to manage their investments, said industry experts.
In line with liberalized corporate Income Tax, the Forum suggests that the government could consider liberalizing the direct tax provisions for expatriates proposing to live and work in the country to manage large FDI in India. Singapore, which is de facto the corporate and financial hub for Asia, taxes expatriates only on their local income.
The government can provide an exception for foreign domiciled individuals working or living in India under section 6 of the Indian Income Tax Act on lines of similar provisions in other economies for attracting FDI to India, said experts.