India - Other taxes and levies | KPMG | GLOBAL

India - Other taxes and levies

India - Other taxes and levies

Taxation of international executives

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Social security tax

Are there social security/social insurance taxes in India? If so, what are the rates for employers and employees?

The Ministry of Labour and Employment, in a notification dated October 1, 2008, amended the “Employees’ Provident Funds Scheme, 1952,” and the “Employees’ Pension Scheme, 1995,” collectively referred to as the Indian Social Security Scheme. Accordingly, the scope of the Indian Social Security Scheme was extended to specifically include a new concept of “International Workers” (IWs).

Recent amendment in PF and Pension Scheme

The Ministry of Labour and Employment, Government of India issued a notification providing that a Nepalese national and a Bhutanese national shall be deemed to be an Indian worker. This notification has been effective from 2 November 2016.

  • In view of the above notification, IWs are excluded from contributing towards PF in India:If, they are contributing to social security in their country of origin and obtained a Certificate of Coverage (CoC) under the relevant SSA;
  • ‘OR’
  • Deputed from a country with which India has entered into a bilateral comprehensive economic agreement before 1 October 2008. (Currently with Singapore only)
  • OR’
  • They are Nepalese national on account of Treaty of Peace and Friendship of 1950 and the worker who are Bhutanese national on account of India-Bhutan Friendship Treaty of 2007, shall be deemed to be Indian workers. (Date of effect: 2 November 2016)

IWs (other than excluded employees) are required to contribute 12 percent of the specified salary (as defined under the EPF Act) to the Indian social security scheme. Employers are also required to contribute 12 percent of their employee’s specified salary to the scheme. A portion of employer’s contribution i.e. 8.33 percent of salary is mandatorily contributed into the pension scheme. However, an employee who is joining and becoming member of the fund on or after 1 September 2014 and has salary exceeding INR 15,000 at the time of joining the fund is not required to contribute towards the pension scheme.

Amendments in the Employees’ Pension Scheme, 1995

As per notification issued by Government of India, Ministry of Labour & Employment dated 22nd August, 2014, the employee who is joining and becoming the member of the fund for the first time on or after 1st September 2014 2014 and has salary exceeding INR 15,000 at the time of joining the fund is not eligible to become member of Employees’ Pension Scheme, 1995.

Therefore, the employer’s entire PF contribution of 12% will be contributed towards Provident Fund account and there will be no diversion of employer’s share to the Pension Fund.

Thus, all International Workers who would be becoming the members of the Provident Fund for the first time on or after on or after 1st September 2014 and have salary exceeding INR 15000 at the time of joining the fund would not be eligible to become member of Employees’ Pension Scheme, 1995.

Amendments in the Employees' Deposit Linked Insurance Scheme, 1976 (EDLI)

As per notification issued by Government of India, Ministry of Labour & Employment dated 22nd August, 2014; the wage ceiling has been enhanced from INR 6500 to INR 15000.

The contribution towards EDLI and its administrative charges will be subject to a salary cap of INR 15,000 in case of International Workers.

The contribution must be deposited on a monthly basis by 15th of the following month for which contributions are payable.. Necessary forms and returns must be filed with the authorities by the prescribed deadlines.

As on 1 January 2017, India has signed Social Security Agreement (‘SSA’) with 19 countries viz., Belgium, Germany, Switzerland, Denmark, Luxembourg, France, Korea, Netherlands, Hungary, Norway, Czech Republic, Sweden, Quebec, Canada, Japan, Portugal, Finland Austria and Australia. Out of the 19 countries, the countries with which India has SSAs which are currently effective are as follows:

Sr. No Name of the country Effective Date
1 Belgium 1 September 2009
2 Germany 1 October 2009
3 Switzerland 29 January 2011
4 Denmark 1 May 2011
5 Luxembourg 1 June 2011
6 France 1 July 2011
7 Korea 1 November 2011
8 Netherlands 1 December 2011
9 Hungary 1 April 2013
10 Sweden 1 August 2014
11 Finland 1 August 2014
12  Czech Republic 1 September 2014
13 Norway 1 January 2015
14 Austria 01 July 2015
15 Canada 01 August 2015
16 Australia 01 January 2016 
17 Japan 01 October 2016
18 Portugal 8 May 2017
19 Brazil Early 2018

Apart from these SSAs, other SSAs have not yet become effective/ operational.

Withdrawal of social security contribution

Provident Fund (PF) accumulations

The IWs who are covered under an operational SSA between India and any other country can withdraw their accumulated PF balances on ceasing to be an employee in an establishment covered under the PF Act.

 However, in case a person is not covered under SSA, he may withdraw the PF balance on retirement from service in the company at any time after 58 years of age or is faced with certain contingencies (death/ specified illnesses/ incapacitation).

Pension accumulations

In relation to pension withdrawal, the lump sum refund will be available only to those employees who are covered under an SSA in force and who have not completed the eligible service of 10 years even after including the totalization of service under the respective SSAs. Employees not covered under an SSA will not get the lump sum refund.
In case of employees (both from SSA as well as Non-SSA countries) having 10 years or more contributory service, they would be qualified to receive a monthly pension.

Gift, wealth, estate, and/or inheritance tax

Are there any gift, wealth, estate, and/or inheritance taxes1 in India?

There is no estate tax levied in India.

Further, Wealth tax is applicable up to the tax year 2014-15 as the same has been abolished from tax year 2015-16 onwards.

Real estate tax

Are there real estate taxes in India?

Property tax/real estate tax is payable as per local municipal laws on commercial and residential property owned in the respective States.

Sales/VAT tax

Are there sales and/or value-added taxes in India?

Value Added Tax (‘VAT’) and Central Sales tax (‘CST’), which are generally referred to as Sales tax, are destination based Indirect taxes which are levied in India on sale of goods. The Indian Indirect tax has dual structure, wherein the Constitution provides powers to govern Indirect taxes by the Federal and the State. Vide these powers, VAT has been made a State subject for which the States have sovereign powers in taking decision regarding issues like levy, collection of VAT, filing of returns, etc.

Further, though CST is Federal levy, however administrative issues like collection of CST, filing of returns, etc have been delegated to the State.

Goods and Service Tax (GST)

GST - a comprehensive consumption based levy of tax on supply of goods and services which is proposed to be implemented in India. On implementation of the GST legislation, a number of present Indirect taxes would be subsumed such as Central Excise, Service tax, Octroi, Central Sales Tax, State-level sales tax, Entry tax, Luxury tax, Entertainment tax, etcetera and would be replaced by a single Good and Service Tax. This could ensure uniformity of Indirect tax structure and rates across States in India and could also ensure better controls by Central and State Governments.

Also, one of the key feature of the GST legislation would be to avoid cascading effect of Indirect taxes by allowing a seamless credit of tax throughout the value chain across India. The GST regime further proposes to have a comprehensive compliance modules, the foundation of which would be based on a robust IT system.

The Government is taking various steps and seems to be course to implement the GST legislation from proposed date of 1 July 2017.

Other taxes

Are there additional taxes in India that may be relevant to the general assignee? For example, customs tax, excise tax, stamp tax, and so on.

Apart from VAT and CST other Indirect taxes levied in India are as below:

  • Customs Duty and Additional duties of Customs – These are levied on import into/ export out of India of specified goods. Also, these levies are governed by the Federal Government
  • Central Excise duty – This is levied on undertaking a production/ manufacturing of goods. Also, it includes levy of certain deemed production/ manufacturing processes which have been specifically identified. Again, this levy is governed by the Federal Government
  • Entry tax – Certain specified Indian States impose an Indirect which are triggered on the movement of specified goods into geographical limits of such States. This levy is governed by the State Government
  • Octroi/ Local Body Tax – Apart from Entry tax, the local municipal corporations levy an Indirect tax on movement of goods i.e., entry within the local limits of a municipal corporation. These taxes are levied, collected and administered by the respective local municipal bodies of each Indian State

Profession tax

Certain states in India levy a profession tax on employees. This tax is to be withheld from salary by the employer and is also deductible in computing the taxable income of the employee.

1Indian Wealth Tax Act, 1957.

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