RBI brings New Year delight for expats
RBI has taken one more step towards simplifying and liberalizing the once much feared exchange control regulations in India. World's best place for expats
The Reserve Bank of India (RBI), continuing its dynamic streak of balanced liberalisation, recently announced some more good news for expatriates who are on deputation to India and/or employed with Indian companies and are regarded as resident as per the Indian exchange control laws. The RBI has issued a notification with the intention of allowing expatriates on deputation to receive and retain 100 percent of their salary outside India and foreign citizens employed by Indian companies to remit 100 percent of their salary outside India.
This has given some cheer in these times to my friends, Nick Duxbury, a UK citizen and an investment banker who is on deputation to an Indian subsidiary of his foreign employer and his wife who is employed by an Indian consulting company.
So what has changed???
The new RBI Notification allows individuals like Nick, who are employed by a foreign company and are on deputation to an Indian branch, office, subsidiary or joint venture of such employer, to receive 100 percent of his post-tax salary directly in a bank account outside India in foreign currency and to retain such salary outside India. Prior to this change, Nick could only receive and retain 75 percent of his salary outside India. This notification also allows Nick's colleague Vaidyanathan, an Indian citizen employed abroad and on a similar deputation to receive and retain 100 percent of his post tax salary outside India.
Also, earlier, only the foreign company could pay such salary outside India and the new Notification does not impose any such restriction which implies that the Indian entity also could remit the salary to the deputationist outside India.
It also allows non-Indian citizens like Nick's wife who is on employment with an Indian company to remit 100 percent of her post-tax salary income from her Indian rupee bank account to her overseas bank account.
The RBI, over the last few years, has been pursuing the twin objectives of liberalisation and simplification, consistently and effectively. While the new Notification intends to liberalize the salary receipt or remittance for the expatriate employees but the fine print leaves room for interpretation on certain aspects.
This has given some cheer in these times to my friends, Nick Duxbury, a UK citizen and an investment banker who is on deputation to an Indian subsidiary of his foreign employer and his wife who is employed by an Indian consulting company.
So what has changed???
The new RBI Notification allows individuals like Nick, who are employed by a foreign company and are on deputation to an Indian branch, office, subsidiary or joint venture of such employer, to receive 100 percent of his post-tax salary directly in a bank account outside India in foreign currency and to retain such salary outside India. Prior to this change, Nick could only receive and retain 75 percent of his salary outside India. This notification also allows Nick's colleague Vaidyanathan, an Indian citizen employed abroad and on a similar deputation to receive and retain 100 percent of his post tax salary outside India.
Also, earlier, only the foreign company could pay such salary outside India and the new Notification does not impose any such restriction which implies that the Indian entity also could remit the salary to the deputationist outside India.
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It also allows non-Indian citizens like Nick's wife who is on employment with an Indian company to remit 100 percent of her post-tax salary income from her Indian rupee bank account to her overseas bank account.
The RBI, over the last few years, has been pursuing the twin objectives of liberalisation and simplification, consistently and effectively. While the new Notification intends to liberalize the salary receipt or remittance for the expatriate employees but the fine print leaves room for interpretation on certain aspects.
Before we elucidate these aspects, let me tell you that every time we seek to insert our comments on how could the law be amended to enable it to achieve its intention and objective, we remember the words of the Learned Judge Lord Denning ie "The English language is not an instrument of mathematical precision and our literature would be much the poorer if it were". So very true! Keeping in mind this axiom, here are a few points which can be clarified, which in the humble views of the authors, would further the perceived intent of the RBI.
1. The new Notification covers deputationists who are employed only by a foreign company and who are on deputation to an Indian branch, office, subsidiary or joint venture of such foreign company. It can be clarified that even employees of other forms of business establishments ie partnerships, limited liability partnerships (LLPs), are sought to be covered.
2. A key question is whether the deputing entity has to be only the foreign Parent or it can be even a Group entity. It can be clarified that the liberalisation extends to deputation by any foreign entity to any Indian entity, provided both the entities are in the same Group.
3. Many foreign employees continue to retain their social security and retirement benefits abroad. Also, they could be liable to taxes overseas on the Indian salary. In order that the expatriates continue contribution to the social security, retirement benefits and pay their overseas taxes, their salary may have to be disbursed through or reimbursed to the foreign employer entity. Therefore, the Indian entities should expressly be allowed to disburse or reimburse the salary costs recharged through or to such foreign employer entity to facilitate payment with the relevant overseas authorities.
4. For foreign citizens, who have been allowed to remit 100% of salary from their Indian bank accounts, this facility could be extended to allow their Indian employers (ie Indian companies) to directly pay the employees outside India. Also, it can be clarified that this facility extends to other forms of business establishments including partnerships, LLPs, trusts, etc.
To conclude, the RBI has taken one more step towards simplifying and liberalizing the once much feared exchange control regulations in India. Clarifications on the above points would greatly facilitate the attainment of the intention and reduce the reams of paper used to file applications for clarifications with the RBI.
(The authors are senior tax professional with Ernst & Young, India)
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