As an expat in India, the only taxes you are likely to notice are income taxes and VAT. Income taxes are deducted from your salary and returns should be filed in July of every year. VAT is figured into the price of most items sold at shops, so you won’t even notice it in your purchases. However, it is generally added onto bills at restaurants (except at cheaper eating joints, where it’s included or not levied). It is also sometimes added on to the price of salon and spa services.VAT on food and most other items is around 12.5 %. VAT on alcohol (in restaurants and bars) is at 20%. The VAT for alcohol is normally added on at the end of alcohol purchases in restaurants, but included in the price of drinks in bars.
The principal taxes levied on residents of India are as follows:
- Taxes on income are the Income Tax, Agricultural Income Tax (levied only by states), Interest Tax (applicable to banking and financial companies).
- Taxes on transactions include Local Sales Tax (levied only by states), Central Sales Tax, Excise duty, Customs Duty, Stamp Duty, Gift Tax, Expenditure Tax, and Value Added Tax. These taxes are already added to the price of the good you buy from shops.
- Taxes on property include Wealth Tax and Property Tax.
Some other important considerations you must know before you finalise your assignment in India:
- Salary includes both cash components and perquisites provided to an employee in connection with his Indian assignment.
- Cash components are fully taxable in India. Certain perquisites such as housing and furnishings are taxable on concessional basis.
- India does not have any social security law in place. The tax laws in India do not provide for any special provision for taxation of contributions, if any, made by the employer towards social security or other pension/benefit schemes in the home country of the expatriates.
- Perks like employee stock options (Esops) also turn into a significant issue as some countries tax Esops when exercised, while India taxes Esops as soon as they are vested.