Tax relief likely for expats hired for PLI jobs

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New Delhi: The government could relax tax residency rules for expatriates recruited by overseas investors setting up manufacturing units under the production-linked incentive (PLI) scheme to make it more attractive. The finance ministry has held discussions on the tax issues relating to the PLI scheme with stakeholder ministries ahead of the February 1 budget, people familiar with the development told ET. The relaxation or complete exemption would help with the recruitment of experts and professionals to set up operations. A final call on the proposal will be made after taking into account revenue considerations.

The PLI scheme offers cash incentives for up to five years on incremental sales over a base-year threshold to those setting up manufacturing plants in the designated sectors.

ETD-1-26012021

Relief with Riders

The government had in November last year approved the PLI scheme for 10 more sectors including steel, white goods, air conditioners, LEDs, solar PV panels, processed food, textiles, telecom equipment, pharmaceuticals, automobiles, electronics and batteries. It’s already in operation for electronics and mobile phone manufacturing. The residency rules provided in Section 6 of the Income Tax Act lay down the conditions under which an individual is considered a resident of India and liable to tax in the country.

An individual is considered a resident if the person is present in India for 182 days or more during a tax year or 365 days in four preceding years and 60 days in the tax year. This applies to all individuals, including those who are not Indian citizens. Foreigners deemed resident in India are also required to comply with disclosure requirements that cover their overseas incomes and assets. The proposal is to relax conditions or exempt foreign nationals working on PLI investments from these rules, implying they would not face taxes or have to make disclosures here in India.

The exemption is likely to be conditional on a certain minimum foreign investment and limited to overseas investors being non-residents for a period of five years. This is to ensure that the relaxations only apply to genuine and large foreign investments.

“Large-scale FDI requires foreigners with requisite expertise to stay in India for long periods of time, to manage investments, bring technical expertise and therefore it is essential to incentivise them through liberalising personal income tax law such that the global income is not taxed,” said a senior executive aware of the discussions.

Industry lobby groups have raised the issue with the finance and commerce ministries, flagging challenges for foreigners working in India. This includes payment of higher taxes or global income getting taxed here in certain situations.

Foreign workers also face hurdles in claiming full credit for tax paid in India in their home countries due to a mismatch in financial years. India follows an April-March financial year.

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