Measures introduced due to COVID-19
We summarise below some of the tax relief measures announced by the Indian Government as well as the key tax aspects which may affect an organisation’s employee/expat population.
Relief measures by the Indian Government
An Ordinance was passed by the President of India extending the time limit to complete below compliances to 30 June 2020.
- Withholding Tax (WHT) compliances by employer for Financial Year (FY) 2019-20
- WHT deposits falling due between 20 March to 29 June 2020 can now be deposited up to the extended deadline of 30 June 2020. This would be with a reduced interest rate of 9% p.a. instead of 12% p.a. Additionally, there will no penalty for such delayed deposit.
- WHT returns for Quarter 4 of FY 2019-20 (i.e. the period 1 January to 31 March 2020) initially due by 31 May 2020 can now be filed by 30 June 2020.
- WHT certificate (Form 16) initially due by 15 June 2020 can now be issued to employee by 30 June 2020.
- Tax deductible investments for FY 2019-20
- In respect of investment/contributions eligible for deduction (such as Employee Provident Fund, Approved Superannuation Fund, life insurance payments, mutual funds, principal repayment of housing loan, tuition fees, stamp duty, registration fee and other expenses for the purpose of transfer of such house property, term deposits, health insurance payments, etc.); the last date for making such investment contributions is extended from 31 March 2020 to 30 June 2020.
- Investment in other capital assets to claim capital gains exemption under Indian tax laws has also been extended from 31 March 2020 to 30 June 2020.
- Individual tax return for FY 2018-19
- The deadline to file a revised and belated tax return for FY 2018-19 has been extended from 31 March 2020 to 30 June 2020.
- Provident Fund hardship withdrawal
The Provident Fund (PF) authorities have included the ‘Outbreak of pandemic (COVID-19)’ as one of the categories under hardship withdrawals from PF account. Employees can withdraw the funds as per prescribed limits without any income tax implication on such withdrawal.
- Key considerations for your expatriate population
Apart from the above mentioned points, the following are some key aspects that you may need to reconsider for your globally mobile population:
- Employee’s excess stay in India / overseas country
- Considering most countries have imposed international travel restrictions, an individual on global assignment/project/business travel in India could unintentionally exceed the threshold of his/her physical stay in India. Hence, the individual may become a tax resident in India and thereby their overseas income may be subject to tax in India.
- Similarly, a reverse situation could occur overseas i.e. an individual currently outside India may become a tax resident in overseas country. A foreign tax consultation should be sought in such cases.
- A revisit to their tax position is required.
- Permanent Establishment (PE) exposure
- If an Indian employee is forced to remain overseas, you may want to analyse if it creates any PE risk for the Indian entity in such foreign country.
- Due to travel restrictions, some individuals may be forced to stay in India. Hence, you should consider whether the work they are doing in India creates a PE for the foreign entity in India.
- Migrating employment/payroll to the other entity may also be considered.
- Tax liability and Employer considerations
- Owing to an unforeseen physical stay in India, you may want to revisit the tax liability in India. Employer WHT obligations in India may need to be reviewed.
- Due to postponement of assignments, individual’s salary income, home leave allowances, evacuation costs, accommodation etc. would need to be reviewed from a tax perspective.
- Organisations may want to revisit the assignment related tax cost estimates.
- Organisations may also seek to review their transfer pricing in respect of ongoing or new assignments.