Hiring in an unfamiliar country is always challenging, especially when dealing with foreign employees. There is a lot to take into consideration if you want to stay compliant and avoid the many legal underwater currents. And India is no exception.
Here are the main things you need to know while employing international workers in India.
International Workers (IWs) definition in India
All expatriates holding foreign passports and working for an employer in India are regarded as International Workers.
Taxation of employment income.
International Workers are subject to income tax in India on all their income derived from a source in India or received in the country during the relevant tax year. Expats are taxed at the same rate as residents and it may be necessary to look at tax treaties with your home country to avoid any issues of double taxation.
Foreign nationals may be exempt from tax in India if their stay in the state does not exceed 90 days, as prescribed in Indian domestic law. Or the number of 183 days under various double taxation avoidance agreements (DTAA) with more than 80 countries, including Australia, Canada, New Zealand, Singapore, the UAE, the UK and the US.
The tax rates in India on personal income range from 10 – 30% depending on the total amount of earnings. Taxes are withheld monthly from the pay check based on the annual estimate of income after deductions reconciled at the end of tax year.
There is a non-taxable basic exemption limit of Rs 250,000 ($3522 or €3185) per year, after that the rates are:
- 0 – 500,000 ($7044 or €6370) = 10%
- 500,001 – 1,000,000 ($14,090 or €12,740) = 20%
- 1,000,001 – 10,000,000 ($140,900 or €127,400) = 30%
Social security contributions
As of 2008, all IWs are required to become members of the Indian Social Security Scheme unless they qualify as ‘excluded employees’.
Excluded employees are:
- IWs who are contributing to social security in another country/territory covered by the Social Security Agreement, providing they have obtained a Certificate of Coverage. Currently India has SSA with 20 countries worldwide.
- Citizens of a country/territory with which India has entered into a bilateral comprehensive economic agreement before 1 October 2008. (Currently only Singapore)
- Nepalese nationals on account of Treaty of Peace and Friendship of 1050 and Bhutanese nationals on account of India-Bhutan Friendship Treaty of 2007, shall be deemed to be Indian workers. (In effect as of 2 November 2016)
Both, IWs and their employers must pay social security contributions to the Indian Social Security Scheme. Payable amount is 12% of the specific salary from each benefactor.
A portion of employer’s contribution i.e. 8.33% of the salary is mandatorily put towards the Pension Scheme.
However, International Workers who have joint the Provident Fund on or after 1 September 2014 and have a salary exceeding INR15,000 ($210 or €190) at the time of joining the fund are not eligible to become members of Employees’ Pension Scheme.
Therefore, the employer’s entire Pension Fund (PF) contribution of 12% will be donated towards the Provident Fund account and there will be no diversion of employer’s share to the PF.
Work Permits and Visas
India has specific requirements to issue work permits and visas to your staff assigned to work in India, and the primary type is the Employment or ‘E’ visa. This visa is granted for one year, or for the term of the contract in India (up to 10 years). International Workers must applied for the Employment Visa from the employees
Although we have covered the main points you need to know when hiring foreign employees in India, you need to be very careful. Laws constantly change and the information provided might be outdated. Moreover, there might be additional regulations involved specific to your unique case. As well as hidden charges.
Hence, there is always the risk of non-compliance with Indian legislation. Which is entirely on you and your company, unfortunately. Besides, the consequences of non-compliance are very high.
That is why many companies choose to outsource their employment process in India to workforce management consultancies. Reach out now to find out how we can alleviate your burdens when hiring in India.