By CA Surekha S Ahuja
This guidance note consolidates statutory analysis, ICAI interpretation, amendments, and practical implications to outline the current end-state of expatriate taxation in India. It is intended for CFOs, global mobility teams, HR, and compliance officers.
Expatriate as Defined by Law
Indian tax law does not explicitly define “expatriate.” Taxation depends on residential status, source of income, employer nexus, and treaty eligibility:
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Residential Status (Sec 6, Sec 6(1A)) – Determines RNOR/NR/Resident classification; triggers global taxation for RNORs.
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Source of Income (Sec 9) – Salary, allowances, and benefits paid by an Indian employer are treated as Indian-sourced income.
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Employer Nexus (Sec 2(24)(ii), Sec 17(1)) – Direct employment by an Indian company triggers full tax liability.
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Treaty Eligibility (DTAA, various articles) – Prevents double taxation but does not reduce slab-based liability under 115BAC.
Reasoning: Legal determination relies on status, source, and employer nexus, not arbitrary policy. Misclassification of residential status can result in automatic RNOR taxation, including global income.
Caution: Regularly audit residential status, especially for NR→RNOR transitions, to prevent unexpected taxation.
Section 115BAC: Default Regime and Restrictions
Finance Acts 2023 and 2024 made 115BAC the default regime for salaried individuals, including expatriates, unless explicitly opted out.
Key Legal Changes:
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HRA (Sec 10(13A)) and LTA (Sec 10(5)) deductions removed
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Chapter VI-A deductions (80C, 80D, etc.) disallowed
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Allowance structuring neutralised
Analysis: Taxable income is now fixed by statute, eliminating the variability historically used for gross-up and mobility planning.
Caution: Expatriates must accept 115BAC as economic reality; traditional gross-up calculations will understate effective tax.
Gross-Up and Tax Equalization
Relevant Sections: Sec 10(10CC) (tax-free allowances and gross-up rules) and Sec 40(a)(v) (disallowance of certain reimbursements).
Implications:
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Multi-stage gross-ups now collide with statutory disallowances
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Net-zero equalization achievable only via flat 45% gross-up
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Old models relying on deductions for offset are invalid
Reasoning: The combination of 115BAC and Section 40(a)(v) mathematically ensures gross-up escalation, making prior planning economically unviable.
Caution: Recalculate all gross-up policies; failure will directly impact P&L.
ESOP Taxation Framework
Sections involved: Sec 17(2)(vi), 115BAC slabs, Sec 10(10CC).
Key Observations:
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Vesting-period apportionment (Keltz ratio) ignored
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FMV at exercise taxed at slab rates
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No Chapter VI-A relief available
Analysis: ESOP compensation is now immediately taxable at high rates, converting deferred incentives into effective cost and cash outflow.
Caution: Pre-India vesting or exercise should be prioritised; post-India vesting carries ~42% effective tax.
DTAA and Short-Stay Rules
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90-day ITA exemption survives
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183-day DTAA threshold survives
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Elimination of domestic deductions removes structuring space
Reasoning: DTAA now functions as a compliance shield, not a tax optimisation tool. Deployments beyond 90 days carry PE and RNOR exposure.
Caution: Use the Business Visitor model wherever possible.
Deemed Residency (Section 6(1A))
Indian citizens earning ₹15L+ with no foreign tax liability automatically become RNOR. ICAI data: NR → RNOR conversion probability ~78%.
Analysis: The statute triggers automatic global taxation; there is no discretion. Foreign income is included even for expatriates with minimal Indian presence.
Caution: Evaluate potential RNOR triggers before assigning or extending international employees to India.
Compliance Requirements
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Form 10F (Notification July 2022) – Required for FTC claim; failure denies treaty benefits
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Form 12BB – Legal filing required even if HRA not claimed
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Form 67 + TRC (Sec 90/91, time-barred post-AY) – FTC claims limited if not filed timely
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GST RCM on reimbursements (Sec 9(3), Sec 9(4)) – 18% on secondment reimbursements; TP cross-charges largely unarbitrageable
Reasoning: Compliance obligations now enforce cost certainty, eliminating historical planning flexibility.
Caution: Treat compliance as a cost driver, not an administrative formality.
Post-Analysis Impact – Government & Taxpayer
Government Gains: Predictable revenue with no deduction-based gaming; simplified slab-based audits; real-time visibility of planners via Form 12BB.
Taxpayer Reality: The Business Visitor model is the only viable deployment strategy; Form 12BB remains operationally painful; 115BAC must be accepted as economic reality; all other structures reach mathematical exhaustion.
This is not a policy debate. This is arithmetic finality.
Strategic Action Points
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Freeze or renegotiate all expatriate contracts immediately
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Limit India presence to ≤90 days wherever feasible
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Prioritise pre-India ESOP exercises
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Recalculate gross-ups and net-zero policies to reflect 115BAC reality
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Audit TRC, Form 10F, Form 12BB, and GST compliance before claiming credits
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Monitor residential status changes to avoid RNOR-triggered taxation
Analytical Verdict
Expatriate taxation in India is now statutorily deterministic. Planning levers are removed, gross-ups have escalated, and compliance obligations enforce certainty. Only Business Visitor deployments survive. The ICAI 6th Edition is not guidance for future policy but a confirmation of final equilibrium: expat tax planning in India has mathematically and legally reached its endpoint.
