Rationalise tax provisions for cross-border, mobile population

In today's increasingly integrated global economy, for many organisations, the pressure to compete effectively has led to an increase in the size and complexity of their global workforce, placing greater demands on internationally mobile human capital.

Such employees who are moved/seconded to international locations are required to comply with the tax laws in the country of departure, as well as arrival.

Against this backdrop, we have analysed the key provisions in the Indian direct tax laws, which may need further evaluation in the upcoming Union Budget, so as to make life easier for such mobile workforce:

1    Refund of income tax - Due to the possible dual country taxation, many a times a foreign national files his India tax return with a possible refund claim. Thereafter, he may leave the country and close all bank accounts in India before the refund claim is processed. In such a case, there is an administrative difficulty (and indeed impossibility) to obtain the same if the individual does not have an operative bank account in India. The tax department may consider incorporating a mechanism wherein the tax refunds can be directly remitted to the foreign bank accounts of such individuals. This approach of refunding the rightful money of taxpayers from an administrative convenience perspective has been adopted by the social security authorities in India as well.

2    Objection Certificate - Currently, the tax laws require that a foreign national who has come to India for the purpose of business, profession or employment, should inform (through an undertaking) before leaving India to his jurisdictional tax officer regarding the fact of his departure along with certain relevant documents. Subsequently, the tax officer is required to issue a No Objection Certificate (NOC). However, considering the current digitally advanced world where countries are willing to exchange information in respect of potential tax defaulters, any physical filing of departure formalities can be relooked. This also raises practical difficulty for short-term visitors as they may not have a tax obligation in India.

3    Foreign tax credit - Currently, there are no provisions in the tax laws enabling an employer to consider benefits under a Double Tax Avoidance Agreement (treaty) signed by India (e.g. credits for taxes paid in another country/exclusions of income), while computing tax deducted at source (TDS) on salary income. This creates cash flow concerns for the foreign nationals who are initially subject to TDS in India by their employers (under Section 192 of the Income Tax Act, 1961) and then they need to claim large refunds on account of treaty benefits at the time of filing their return of income to mitigate double taxation.

Since the tax treaty benefits are in any case admissible at the time of filing the return of income by the foreign national, it shall be a welcome move to make appropriate amendments in the TDS provisions relating to salary, permitting the employer to consider tax treaty benefits at the time of TDS itself.

4    Tax Identification Number (TIN) for PAN to avoid higher deduction of taxes at source - In case an individual fails to furnish his Permanent Account Number (PAN) to the payer of his/her income, the payer is required to deduct taxes at higher rates (minimum prescribed rate being 20 per cent). However, this seems to be difficult in the case of non-residents (NRs) since specific rates for deduction of taxes at source (e.g. 20 per cent in case of long-term gains, etc.) have already been prescribed in the tax laws for NRs. As suggested by the recent Easwar Committee reports as well, it may suffice if the NR furnishes to the deductor, in lieu of his/her PAN, the TIN allotted to the NR in his/her country of tax residence. In case there is no such number issued by the home country government, then, a unique number on the basis of which the NR is identified by the government of his country should at least work.

In conclusion, India's participation in the recent 2016 World Economic Forum in Davos, led by Finance Minister Arun Jaitley, saw heavy positivity of the 'Make in India' initiative and witnessed global CEOs approving India as a bright spot among big economies.

This sets the stage for India as one of the most attractive destinations for investments (and skilled manpower), which is likely to result in an increased influx in, as well as outflow of talented individuals from India.

Hence, there is a case to address and clarify some of these long pending tax concerns to facilitate increasing mobile manpower, which is a natural consequence of foreign investment.

(The author is Partner and Head, Global Mobility Services, Tax, KPMG in India. The views and opinions expressed herein are those of the author and do not necessarily represent the views of KPMG in India.)