Income tax for American working in India???

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#1 Jul 24th, 2006, 09:50
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What is the tax situation like for an American Company sending an employee to India?

Would it be more beneficial for an American Company to create a local company in India in order to pay taxes and all the other legal hassles to it's employee or should they just continue to pay American taxes? My husband's company (an American trade magazine) is thinking of sending him to India and they were wondering what the best way to go about that would be. Would my husband have to pay Indian taxes too? He is an American national, but I am Indian. He writes for the magazine and we were wondering what his tax situation will be like when his company sends him to India. He works from home in California, and will be working from home even in India, so his company doesn't have to go about setting up an office or anything for him. Please help, we are so confused!! The Indian government website isn't very helpful
#2 Jul 24th, 2006, 09:56
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Your husband's company must have an accountant. I would think that's what a company accountant would be paid to do, to answer those type of tax questions.

welcome to IndiaMike! someone will probably be along shortly to answer your question!
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#3 Jul 24th, 2006, 09:58
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if your huband stays for more than 180 days in a year in india he has to pay taxes on all global income in India. (but to the US he may be a non reident and thus exempt from taxes for income not made in the US.

If he stays in India for less than 180 days in a year, it may be a good idea to set up a "branch office"(not a seperate company) in India and get the income written off in the US, and get paid in the US.

If you're planning a long term stint in India(greater than 180 days) it could be a good idea to set up a corporate entity in a place outside india which has a double tax treaty with india(mauritius? plese check) and get paid there.

However, if all hhis is only for tax on salary income, I suggest you pay taxes in india (they're not much higher than in the US, there's plenty of deductions and loopholes , and really, it feels good to pay taxes honestly!

#4 Jul 24th, 2006, 10:00
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#4
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Originally Posted by yogagal60510 Your husband's company must have an accountant. I would think that's what a company accountant would be paid to do, to answer those type of tax questions.

welcome to IndiaMike! someone will probably be along shortly to answer your question!
Unfortunately his company does NOT have an accountant, and that is the reason why I posted my query here. It is a small company. Thanks for not being any help at all!
#5 Jul 24th, 2006, 10:10
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Originally Posted by cdrake However, if all hhis is only for tax on salary income, I suggest you pay taxes in india (they're not much higher than in the US, there's plenty of deductions and loopholes , and really, it feels good to pay taxes honestly!


Thanks for the quick reply. I forgot to mention, it will be for atleast 2 years that he will be sent to India. His company is looking to pay him in dollars into his bank in America itself, so will he be taxed in India or America, or both? I'm so confused, sorry!
#6 Jul 24th, 2006, 10:21
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Ok, apology accepted on behalf of yogagal60510,

there are many possible answers to your question .

1. they don't have to know about his american paycheque. what they don't know will not enter their records.

If he is getting paid in the US the company will probably deduct tax from each payment. so he just needs to file a US tax return for it. If this happens, irrespective of where he is currently located, he will get taxed on this income as US income.

2. if he chooses to become a non resident in the US(becaue he left the country for more than 180 days) he needs to prove it in his income tax return that he is not resident in the US, and they'll pay back all the money as a refund.This may be trickier if he has a house and other assets for which he is paying taxes and utility bills here(if he is being investigated by the IRS), but it has happenned.

3. If he plans to get a residency(long term) in India, he will at the minimum pay income tax on all income "accruing or arising in india" however your husband's employer and he want to work that out. a salary cheque paid in the US may not be considered income accruing or arising in india, if your husband makes a case that his employment in india is only part of the reason he was hired by his firm. (on the indian IT forms.

I suggest your husband consult an Indian charterd accountant specializing in tax matters before he signs any tax, immigration or other legal forms.
#7 Jul 24th, 2006, 10:28
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#7

Smile

Thank you so much!! Yours has been the most helpful and easy to understand answer I have gotten from income tax lawyers as well as forums!
#8 Jul 24th, 2006, 11:00
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#8
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Originally Posted by SC333 Unfortunately his company does NOT have an accountant, and that is the reason why I posted my query here. It is a small company. Thanks for not being any help at all!
Excuse me, but I think yogagal's response was extremely helpful, and your comment "Thanks for not being any help at all" is short-sighted and a bit rude.

I don't care how small your husband's company is, they can and should hire a qualified accountant to address tax questions, especially if the company is thinking of doing something complicated like sending an employee to India for two years. The accountant doesn't have to be an actual employee of the firm. There are any number of CPA's, from sole practitioners to large firms, who can be retained on an hourly or project by project basis to perform work like this. If the company can't even afford to do this, I'd be very concerned about its general financial soundness. Regardless of whether the company consults with an accountant on its own behalf, you and your husband should also see a CPA to discuss the personal tax consequences of this proposed posting to India.

How could you possibly know whether any advice you might get here is accurate? Do you think you can assess the competence of anyone who happens to provide a response? It's one thing to ask a question about taxes just because you're curious and want a bit of general information. But if a business (or an individual) is actually going to rely on that advice and act on it, the business or individual shouldn't be looking to a travel discussion forum it answer such important questions. Who will you hold responsible if the information is wrong and your husband or his company gets sued by the Indian Govt or the U.S. Govt and has to pay fines ... or worse? Do you think you can sue IndiaMike for accounting malpractice?

In my view, tax questions, legal questions, and medical questions except for questions about the most minor matters should be addressed to an appropriate professional, not a bunch of total strangers who may or may not know what they're talking about. cdrake has pointed you in the right direction, but please note that he has also advised you to consult with an Indian Chartered Accountant (the Indian version of a U.S. Certified Public Accountant). You shouldn't just leave it at whatever information you obtain here and assume that it's complete or accurate.
#9 Jul 24th, 2006, 11:07
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I don't think there's any need to unnescesarily beat anyone up on this ..she probably felt yogaal's answer did not address her question and yogagal probably felt(rightly) that this was not appropriatre for a travel forum(like you do) although the poster was welcome to ask...both were right some, IMO.

as regards why this question is appropriate to a travel/ india forum, I think the OP probably wanted to know what other non professionls who have done this before, are doing. where better to ask, than at a forum like indiamike.

she'll probably not rely completely on the advice given here, instead use it to get a good idea of what is possible and not, and then get her tax professionals to help her set up the most profitable method.IMO, that's perfectly good tax planning . I always check with people in a similar situation to mine if I wanted tax advice before I talk to my Tax advisor/financial planner.
#10 Jul 24th, 2006, 11:39
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Re: cdrake's point 2, US citizens have to pay US federal income tax on their worldwide income; does not matter whether they are resident in the US or not (this may sometimes depend on specific tax treaties, so you definitely need professional advice). They will get a foreign tax credit on any foreign income tax paid. It is only state tax that you don't have to pay if you are nonresident.

All income earned in India is taxable in India, regardless of length of residence (there are some exemptions for very short consultancy visits). Worldwide income is taxable in India if you are a resident of India (more than 180 days in the financial year which is April to March).
#11 Jul 24th, 2006, 11:42
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#11
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Originally Posted by cdrake I don't think there's any need to unnescesarily beat anyone up on this ..she probably felt yogaal's answer did not address her question and yogagal probably felt(rightly) that this was not appropriatre for a travel forum(like you do) although the poster was welcome to ask...both were right some, IMO.
Saying "Thanks for not being any help at all" was not OK in my opinion. I have no problem with the OP asking her question, but when someone responds, in effect, "this is a question you should be asking a qualified professional" -- which is perfectly sound advice -- it's just snotty to say "thanks for nothing." That's what I'm was objecting to.

Quote:
Originally Posted by cdrake she'll probably not rely completely on the advice given here ...
Maybe, maybe not. Her other comments didn't leave me with the impression that she was planning to consult an accountant or other tax professional in addition to asking questions here, particularly in light of her response to yogagal. That concerned me.
#12 Jul 24th, 2006, 11:56
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#12
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Maybe, maybe not. Her other comments didn't leave me with the impression that she was planning to consult an accountant or other tax professional in addition to asking questions here, particularly in light of her response to yogagal.
But you were guessing how she was going to act. Tell her if you have any information or let people who do give it. this is not like rocket science because plenty of people file taxes in more than one country.

Quote:
US citizens have to pay US federal income tax on their worldwide income; does not matter whether they are resident in the US or not (this may sometimes depend on specific tax treaties, so you definitely need professional advice).

Manojb is right, you DO need to take the help of a professional tax preparer, who will also tell you that uder the US tax code(federal) that any income earned aborad is subject to an exclusion from income reckoned for taxes if you were the resident of a foreign country and you may have some write offs for other things, not limited to, but including taxes you may have paid abroad, and a housing tax credit...depending on how you do your taxes.
#13 Jul 24th, 2006, 12:02
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#13
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Originally Posted by dzibead
Maybe, maybe not. Her other comments didn't leave me with the impression that she was planning to consult an accountant or other tax professional in addition to asking questions here, particularly in light of her response to yogagal. That concerned me.
Wow, I see there are a lot of people on this forum with nothing better to do than trawl different threads and post unneccessary comments, which are of no help to the OP. I refuse to defend what I said, YOGAGAL came across as exteremly unhelpful because she had nothing of consequence to say, instead she said something so blatantly obvious that it was downright rude. "I would think that's what a company accountant would be paid to do, to answer those type of tax questions."
As far as I am concerned, I like getting as much information as possible before going to talk to a professional CPA, so I know the type of questions to ask...and as cdrake said "what better place to ask than a forum"..sorry for the paraphrasing...
So dzibead...if you have no real suggestions or advice to give, then don't say anything at all!
#14 Jul 24th, 2006, 12:08
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#14
Yep, Thanks for not being any help at all was not exactly polite --- or at least it came accross as being sarcastic and rude.

There are IM members with all sorts of qualifications and all sorts of experience. I would never say we should not discuss legal, tax, land, health matters etc etc here. In fact, some of the answers from people with experience might be better than answers from qualified pros.

But I would also echo Dzibead's disclaimer... nobody here is advertising their qualifications or lack of them; nobody here is charging any money for their contributions and nobody (especially not IndiaMike.com) can be held liable.

People here can tell their experience, give an idea what to expect ...but anyone earning money in India really should get themselves a local accountant. It may be necessary for them to at least register with the tax authorites here.

...And, my comments on a company that can't check out its employee's tax liability on what it pays them would not be printable!
#15 Jul 24th, 2006, 12:10
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#15
SC333.

Both Yogagal and I are members of the moderating team here.

Dzibead is a long-standing member.

You are very welcome to Indiamike, but if you don't like the way we do things here, well.....
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