Authors: Dezshira & Associates, http://www.dezshira.com/
The following article is aimed at providing an overview of the most important information after arriving in India, so that German founders can start their business expansion as quickly as possible.
The guidelines dealing with entry, stay, and exit of foreign nationals in India are regulated by:
- The Passport (Entry in India) Act, 1920
- The Foreigners Act, 1946
- The Registration of Foreigners Act, 1939 and the Registration of Foreigners Rules, 1992
An expatriate needs to secure an employment visa (EV) for working in India. Indian authorities require documentations from the applicant and his/ her employer. Employment visas are ordinarily granted for one year or depending on the term of the contract and with multiple entry option which can be extended by the Ministry of Home Affairs or Foreigners Regional Registration Officer (FRRO) in the concerned state in India.
The documents required by the authorities to process the visa are straightforward and ideally shouldn’t take much time to gather and organize. Below is the list of documents which are required while applying for employment visa:
Documents required from applicant:
- Original Passport and a photocopy of passport information and signature page;
- Signed Indian visa application form and a photocopy of same;
- Passport size photographs;
- Proof of residence, national ID card or utility bill, from the visa holder’s home country;
Documents required from employer
- Certificate of incorporation from the inviting company in India;
- Sponsor letter from employer in India;
- Permission letter requesting approval of visa registration;
- Appointment letter stating salary, tenure, designation, etc.;
- Tax liability letter; and,
- Justification letter for justifying applicant’s professional skills and competencies;
Except for incorporation certificate, all the documents are required in original. Documents need to be drafted on company’s letter head signed and marked with the company’s official stamp.
For startups seeking to expand to India, a business visa is the right. Business visa is granted for the following purpose:
- To establish an industrial / business venture or to explore possibilities to set-up an industrial / business venture in India
- To purchase / sell industrial products or commercial products or consumer durables
- For technical meetings / discussions, attending board meetings or general meetings for providing business services support
- For recruitment of manpower
- Functioning as partners / directors of the company
- On visit of short duration for monitoring / conducting meetings for ongoing projects
- For pre-sales or post sales activity not amounting to actual execution of any contract or project
India has significantly eased its visa regime in the last years and an e-visa is now granted for 365 days even for business purposes. To get the e-business visa applicants shall apply online minimum four days in advance of the date of arrival. Documents needed are:
- A recent photograph with a white background
- A copy of the passport
- Copy of Business Card
- Any letter of invitation if applicable from Indian parties which wish you conduct the business (optional)
If you know you plan to stay longer, you can also apply visa the Indian embassy and its consulate in Germany. Business visas can be extended up to 5 years.
Foreign nationals liable to pay income tax in India are required to obtain a tax registration number i.e. Permanent Account Number (PAN) upon their arrival in India. PAN is usually given within 15 days of applying and submitting the documents.
All foreign nationals visiting India on long term (more than 180 days) visa are required to get themselves registered with the Foreigners Regional Registration Officer (FRRO) within 14 days of arrival except the exempt categories. If you arrive with a e-business visa and plan to stay longer than 180 days, you have to register with the FRRO. Although, Pakistani nationals are required to register themselves within 24 hours.
FRROs can be found in all bigger cities in India. Agents are not allowed inside the FRRO office, so foreigners would need to go through the process themselves. For other areas, foreign nationals can visit office of District Superintendent of Police which functions as FRRO to facilitate foreigners.
In 2018 an e-FRRO system was launched which is applicable for foreigners in the jurisdiction of all FRROs, and under which foreigners are able to avail various visa and immigration related services without actually appearing in person at the FRRO, unless specifically called upon. Key objective of e-FRRO is to provide faceless, cashless and paperless services to the foreigners with user friendly experience. The documents that need to be submitted may vary according to the type of visa and the purpose of staying in India. Further information can be found in chapter 3.4.7.
It is common to use a broker in India. Depending on your negotiation skill, the broker will either take one month rent or half a month rent for the services rendered to find an apartment. Unlike in Germany, it is not difficult to find an apartment as a foreigner and most of the landlords are happy to have foreigners as tenants. However, if you are moving in with the partner, it may happen that they ask you for your marriage certificate. Also, as the society is collectively closer, Indian landlords can be quite intruding, especially if they live in the same building. When you are looking for a flat in India, it is thus important to find a landlord that follows a modern approach without intruding in your privacy. Besides brokers there are several websites where one can find flats, such as Quikr, 99Acres, etc. The prices differ fundamentally from city to city and modern apartments in cities such as Mumbai and Delhi can be quite pricey. Most Indian flats are bigger than Germans as they are usually designed to accommodate entire families. Thus, most of the rooms have attached bathrooms. Balconies are often designed to serve the sole purpose of keeping laundry and the wash machine. Most of newer apartments have western toilets, however, it can happen that you still find apartments with Indian toilets.
Utilities such as electricity, gas, water and internet are usually extra and can vary widely in prices. For instance, in cities such as Mumbai where an AC is needed most of the year, one’s electricity bill can be significantly higher than in Bangalore where the weather is more pleasant throughout the year. Most Indians also have a maid supporting in housekeeping and cooking.
Prepaid cards are available almost everywhere. However, to use a sim card one has to register and provide an accommodation (e.g. hotel) or residence proof. To verify the genuity of the person, an alternative contact number has to be given which is being called to verify the person that has applied for the sim card exists. There are several network providers in India you can chose from. Airtel used to be the largest mobile network provider with approximately 300 million subscribers. However, Airtel has been taken over by Reliance Jio which offers excellent prices and good coverage. In addition, Reliance Jio is the only voice over LTE operator, offering extra high speed. The launch of Reliance Jio has contributed to a stiff competition in the market and has led to the closure or merger of several operators. Vodafone, who used to be the second biggest operator, merged with Idea and currently holds approximately 30% of the market share. All three operators provide good coverage and packages starting from EUR 5. All operators also offer post-paid, however, as the price is so cheap, it is recommended to stay with a prepaid tariff.
There are more than 300 providers offering broadband internet services in India. There are currently more than 500 million internet users. Most of the bigger cities have plenty of operators to choose from and a highspeed plan usually starts from around EUR 10, depending on the data package you are choosing. Airtel is the operator most used in India, with approximately 300 million broadband subscribers. It is followed by Vodafone Idea and BSNL. Other operators are TATA Teleservices, MTNL, Hathaway and Jio Reliance.
Foreign nationals working in establishments in India, where provident fund regulations are valid, need to contribute to the provident fund unless specifically exempted. Both employer and employee would be required to contribute 12% of the employee’s monthly salary for social security obligations. The entire 12% of employee’s contribution goes to Employee Provident Fund (EPF) and out of 12% of employer’s contribution, 3.67% is contributed to EPF while remaining 8.33% goes to EPS (Employee Pension Scheme).
Social Security Agreements (SSA) are signed between countries to avoid instances of double social security liability for employees. Under this agreement, employees may continue to remain with their home social security scheme and request exemption from the host country social security scheme. SSA along with helping employees, also promote more investment flows between countries.
New SSA between India Germany came into force on May 1, 2017. This new agreement superseded the old agreement which was in place since 1st October 2009 and now includes totalization and export of pension related benefits.
Taxation of foreign nationals in India
In the year 1991, India moved towards liberalizing its economy and opened the doors for foreign investments in various sectors. This move not only resulted in an influx of billions of dollars in form of foreign investments but also led to migration of competent resources from around the globe to India. Taxation in India is based on the residential status of the individual and not on his/ her citizenship.
Residential status is determined by the individual’s physical presence in India regardless of the purpose of stay. Residential status of an individual can be categorized as:
- Resident and ordinarily resident (R & OR)
- Resident but not ordinarily resident (R but NOR)
- Non-Resident (NR)
An individual who falls in the category of ROR is taxable on his worldwide income, in that given year. Hence, careful tax planning is required on the part of the individual to avoid paying taxes on global income. Individuals falling in Resident but not Ordinarily Residents and Non-Resident categories are liable to be taxed on the income received / accrued in India or deemed to be received / accrued in India.
It is not necessary that the stay in India has to be continuous or at one place while determining the residential status. Important point is to check the number of days an individual has stayed in India during a particular financial year. Salary for services rendered in India is taxable irrespective of the residential status and place of receipt of income.
Indian tax system
Indian taxation year starts from 1st April and commences on 31st March. Residential status of an individual is determined for each taxation year separately.
Taxable income in India for foreign nationals usually includes:
- Salary, wages, allowances, and other cash compensations including incentives and bonus linked to sales or productivity or any other criteria;
- Income tax paid by an employer on behalf of his / her employee;
- Specific perquisites such as rent-free accommodation, car and a driver provided by the employer also form components of taxable compensation.
Subject to certain conditions, there are certain components of income which are exempt from taxation in India such as house rent allowance, employer provident fund contribution, gratuity, etc.
Income tax slab rates for FY 2020-21
Income tax in India is calculated on the basis of the following tax slabs (Difference of slab rates between new tax regime & old tax regime):
- 10% of income tax, where total income exceeds Rs.50 lakh up to Rs.1 crore.
- 15% of income tax, where the total income exceeds Rs.1 crore.
An individual’s tax return should ideally be filed by 31st July following the end of taxation year on 31st March.
Double taxation avoidance agreement (DTAA)
A situation where an individual is taxed in two countries for the same income is known as double taxation. A DTAA between two countries aids to avoid taxation of income in both the countries. India has double taxation agreement with over 90 countries, including Germany.
Relief under DTAA can be availed by obtaining a Tax Residency Certificate (TRC) from the tax authorities of the resident country.
Tax registration number
Foreign nationals liable to pay income tax in India are required to obtain a tax registration number i.e. Permanent Account Number (PAN) upon their arrival in India. PAN is usually given within 15 days of applying and submitting the documents. From 49AA/ Form 49A can be used to apply for PAN with Indian tax authorities. PAN is also used for extension of Visa and for FRRO registration in India.
Prior to departure from India, on completion of tenure in India, the foreign national is required to obtain an Income Tax Clearance Certificate from the Income Tax Department, signifying payment of all income tax dues.