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International Taxation: A Comprehensive Overview

Introduction

International taxation covers both direct and indirect taxes levied on cross-border transactions, expatriates, and Non-Resident Indians (NRIs). Direct taxation includes income tax, which applies to individuals, Hindu Undivided Families (HUFs), and other taxpayers (excluding companies). Indirect taxation, on the other hand, encompasses customs duties and Goods and Services Tax (GST) applicable to international trade.

This article provides an in-depth analysis of international tax laws, with a focus on NRI taxation, expatriate tax obligations, customs duties, and GST in cross-border transactions.

Direct Tax Under the International Tax Regime

Taxation of NRIs

The tax liability of an individual depends on their residential status in India. Under Section 9 of the Income Tax Act, 1961, NRIs are taxed only on:

• • • Income from a business connection in India
    • Income derived from property, assets, or sources in India
    • Capital gains from the transfer of capital assets located in India
    • Salary earned in India (including rest periods covered under an employment contract)
    • Salary paid by the Government of India to an Indian citizen abroad
    • Dividends paid by Indian companies
    • Interest, royalties, and fees for technical services earned under specific conditions

Taxation Slabs for NRIs

NRIs are taxed at the same income tax slabs as resident Indians below the age of 60 years, irrespective of their actual age.

Exemptions from Filing Tax Returns for NRIs

NRIs do not need to file tax returns if:

• • • Their taxable income consists only of investment income or long-term capital gains.
    • Tax has already been deducted at source (TDS).
    • Interest is earned on specified savings certificates, NRNR deposits, FCNR(B) deposits, or notified bonds.
    • Dividend income is received from Indian companies, mutual funds, or the Unit Trust of India (UTI).
    • Long-term capital gains arise from the transfer of listed equity shares and mutual funds (subject to Securities Transaction Tax).
    • Remuneration or fees are received for technical consultancy under approved programs.

Avoiding Double Taxation: The DTAA Framework

NRIs residing in foreign countries may be taxed twice—once in India and again in their country of residence. To mitigate double taxation, India has signed Double Taxation Avoidance Agreements (DTAA) with over 88 countries under Section 90 of the Income Tax Act, 1961.

NRIs can benefit from DTAA through:

1. 1. 1. Exemption Method – Income is taxed only in one country.
      2. Credit Method – Income is taxed in both countries, but a tax credit is provided in the resident country for tax paid in India.

Taxation of Expatriate Employees

Expatriates working in India are taxed based on their residential status under Section 6 of the Income Tax Act and applicable DTAA agreements.

Residential Status & Taxability

• • • Residents: Global income is taxable in India.
    • Not Ordinarily Residents (NORs): Income sourced in India and income from business controlled in India are taxable.
    • NRIs: Only income accrued or received in India is taxable.

Tie-Breaker Rule for Dual Residency

If an expatriate qualifies as a tax resident in both India and their home country, the Tie-Breaker Rule under the applicable DTAA determines tax residency based on:

1. 1. 1. Permanent home – Where the person maintains a permanent residence.
      2. Center of vital interests – The country with stronger personal and economic ties.
      3. Habitual abode – The country where the person normally resides.
      4. Nationality – The person’s citizenship.
      5. Competent authorities’ decision – A mutual agreement between tax authorities of both countries.

Exemptions for Expatriates Under Tax Laws

An expatriate may be exempt from taxation in India if the following conditions are met:

• • • Under the Income Tax Act (ITA):

      • The foreign company does not engage in business in India.
      • The expatriate’s stay in India is less than 90 days in the financial year.
      • The salary is not deductible from the employer’s taxable income in India.

    • Under the DTAA Treaty:

      • The expatriate is present in India for less than 183 days.
      • The salary is paid by an employer outside India.
      • The salary is not borne by a permanent establishment in India.

Per Diem and Daily Allowance for Expatriates

Foreign companies often provide Per Diem allowances to their employees working in India. Under Section 10(14)(i) of the ITA, these allowances are tax-free if:

• • • They cover daily living costs while on deputation.
    • They are necessary, reasonable, and justified as per work-related expenses.
    • Detailed expense statements and proofs are maintained.

Indirect Tax Under the International Tax Regime

Customs Duty on Cross-Border Transactions

Customs duty is an indirect tax levied on the import and export of goods and services.

Types of Customs Duties in India

• • • Basic Customs Duty (BCD)
    • Countervailing Duty (CVD)
    • Additional Customs Duty (SAD)
    • Protective and Anti-Dumping Duties

Valuation Methods for Customs Duties

Under the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, customs valuation follows these methodologies:

1. 1. 1. Comparative Value Method – Uses transaction values of identical goods.
      2. Deductive Value Method – Based on the local sale price of similar goods.
      3. Computed Value Method – Uses material costs and profit margins from the country of production.
      4. Fallback Method – Combines the above methods for flexibility.

E-SANCHIT Initiative

To streamline customs procedures, the CBIC (Central Board of Indirect Taxes and Customs) introduced e-SANCHIT, an online document filing system for customs clearance.

Goods and Services Tax (GST) in International Trade

Under the GST regime, international transactions fall under Integrated GST (IGST).

Key GST Provisions for International Trade

• • • Exports are zero-rated, meaning exporters can claim refunds on input taxes.
    • Imports are subject to IGST and Customs Duties.
    • Supply to or from Special Economic Zones (SEZs) is considered an inter-state supply, making IGST applicable.

Statutes Governing IGST

• • • IGST Act, 2017
    • Customs Tariff Act, 1975
    • IGST Rules, 2017

International taxation is a critical aspect of cross-border transactions. Direct taxation ensures compliance with residency-based tax obligations, while indirect taxation regulates the import and export of goods and services. The DTAA framework prevents double taxation, and the Tie-Breaker Rule resolves dual residency conflicts.

Businesses and individuals engaged in global trade must stay updated on compliance requirements and tax treaty benefits to ensure efficient tax planning and reduced liability.

Disclaimer: This article has been prepared by Astrea Legal Associates,  The content is for informational purposes only and should not be construed as legal advice. © 2017 Astrea Legal Associates LLP.