All labour laws regulating employment relationships in India also apply to foreign nationals working in India. These include the Employees’ Provident Fund and Miscellaneous Provisions Act 1952 (EPF Act), Employees’ State Insurance Act 1948 (ESI Act), Industrial Disputes Act 1947 (ID Act), Maternity Benefit Act 1961 (MBA) and the Payment of Bonus Act 1965 (PBA).
Categories of Worker
Indian legislation recognises two categories of employee, workmen and non-workmen. The ID Act defines a workman as any person employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or reward, whether the terms of employment are express or implied. Those mainly employed in a managerial or administrative capacity, or those employed in a supervisory capacity earning more than INR10,000 per month, are not included in this definition.
Sales employees (except in West Bengal) are not treated as workmen if most of their work consists of building custom or sales and promoting business. Although all sales promotion employees are excluded from the definition of workmen, certain sales employees are protected under the ID Act as a result of the Sales Promotion Employees (Condition of Service) Act 1976. These include sales employees in certain industries, including the following:
- Pharmaceutical.
- Cosmetic/Soaps.
- Household cleaner/disinfectants.
- Surgical equipment.
In addition, the model standing orders under the Industrial Employment (Standing Orders) Central Rules 1946, classify workmen as permanent workmen, probationers, badli workmen and temporary workmen based on the nature of their employment.
Another category of employee recognised under Indian law are contract workers who are employed through an intermediate contractor.
Entitlement to statutory employment rights
The entitlement to statutory employment rights depends on the category of employee and other factors, including remuneration, location of employee and type of industry. However, an employee who does not qualify as a workman will not receive any protection or benefit under the ID Act.
Employment Visa
A foreign national will generally apply for an Indian employment visa to the Indian Embassy/High Commission in his country of residence. The employment visa must be issued from the foreign national’s country of origin, or from the foreign national’s country of domicile provided the applicant’s period of permanent residence in that particular country is more than two years. If the stay in India will be for more than 180 days, the employment visa holder must register with the Foreigners Regional Registration Offices (FRRO) or the Foreigners Registration Offices (FRO) within 14 days of arrival. The foreign national must have a valid travel document and a re-entry permit (if required under the law of the country concerned). An employment visa may be extended on a yearly basis for a maximum period of five years. An application for extension must be made within 30 to 90 days in advance. The foreign national being sponsored for an employment visa must draw a salary in excess of US$25,000 per annum (except for employment in certain sectors).
The condition of annual floor limit on income will not apply to:
- Ethnic cooks,
- Language teachers (other than English language teachers) / translators and
- Staff working for the concerned Embassy/High Commission in India.
Employment visa is also granted to foreigners coming to India as a consultant on contract for whom the Indian company pays a fixed remuneration (this may not be in the form of a monthly salary), foreign artists engaged to conduct regular performances for the duration of the employment contract given by Hotels, Clubs, other organizations, coaches of national /state level teams, or reputed sports clubs, sportsmen who are given contract for a specified period by the Indian Clubs/organizations, self-employed foreign nationals coming to India for providing engineering, medical, accounting, legal or such other highly skilled services in their capacity as independent consultants provided the provision of such services by foreign nationals is permitted under law, engineers/technicians coming to India for installation and commissioning of equipment/machines/tools in terms of the contract for supply of such equipment/machines/tools, providers of technical support/services, transfer of know-how/services for which the Indian company pays fees/royalty to the foreign company.
The fee for an employment visa is between US$15 and US$1,000, and is subject to periodic amendments by the government.
It is difficult to give a precise time frame as the process is at the discretion of the Indian Embassy/High Commission concerned.
If the visa is not granted, the expatriate cannot travel to India. If the visa is granted for a particular purpose and the expatriate does not adhere to that purpose, the expatriate’s visa will be cancelled and he will be deported. He will also attract the sanctions of imprisonment and/or fines.
Except for the employment visa, no other permits are required from an immigration perspective.
Residential Permit
Foreign nationals including their family members who intend to stay in India for more than 180 days or have visa for more than 180 days, have to get themselves registered with the Foreigners’ Regional Registration Office (FRRO) within 2 weeks of their first arrival in India. For the purposes of registration, the persons are required to make an application in the prescribed form and be present in person at the time of registration. The following documents are required to be submitted along with application:
Application form in quadruplicate (Form A)
- Passport and visa in original
- 4 passport size photographs
- Proof of residence in India
- Copy of employment contract and undertakings by the employer
Once the FRRO is satisfied about the above documents, a “Residential permit” to stay in India is issued to the foreign national.
Income Tax, PAN and Service Tax
Employees and consultants are required to seek tax registration (Permanent Account Number) with the Indian Income tax authorities upon their arrival in India. This is a onetime registration. Foreign nationals providing services in India should check if they are liable to pay service tax.
Under India’s double-taxation agreements, salaries that a foreign company (and not its permanent establishment in India) pays for services rendered in India are taxable in India if the employee works for more than 182 days during the tax year.
Foreign nationals are subject to income tax in India on all their income derived from a source in India or received in India during the relevant tax year (subject to any exceptions under a double taxation treaty).
This income also includes income deemed to be received or deemed to accrue/arise in India. Generally, income from salaries is deemed to accrue or arise in India if the services are rendered in India.
However, for an individual who is not a citizen of India, section 10(6)(vi) of the Income Tax Act 1961 (ITA) provides that the remuneration received by him as an employee of a foreign enterprise for services rendered by him during his stay in India will be exempt from income tax subject to the following conditions being fulfilled:
- The foreign enterprise is not engaged in any trade or business in India.
- The foreign national’s stay in India does not exceed in the aggregate a period of 90 days during the relevant tax year.
- The remuneration received by the said foreign national is not liable to be deducted from the income of the foreign enterprise chargeable to tax in India.
Where a foreign national comes to India and is present in India for a period of 182 days or more during the relevant tax year, he will be considered resident in India. However, for the initial few years (two or three years, depending on his date of arrival and the number of days stay in India), he will be considered as not ordinarily resident for tax purposes and the following income will be subject to tax in India:
- Income received, or deemed to be received, in India.
- Income accrued or arising, or deemed to accrue or arise, in India.
- Income accrued or arising outside of India in relation to a business controlled, or a profession set up, in India.
Thereafter, once he becomes “ordinarily resident” in India, his global income is taxable in India.
Income Tax – Foreign nationals residing in India who are liable to pay tax, must do so on the following types of income:
- Employment Income – This category includes the following:
- Salaries
- Reimbursements
- Wages
- Cash compensations
- Allowances
All these forms of income are taxable along with compensation such as perks like a company car along with a driver or the individual’s employer paying tax on his or her behalf.
- Non-Employment Income – This category includes the following:
- Any income gained through investments made abroad but sent directly to a bank account within India
- Any capital gains, whether long term or short term, acquired due to the sale of assets based in India
- Royalties received from an Indian entity
- Interest payments on infrastructure debt funds in India
Foreign nationals in India can also avail of benefits via the Double Tax Avoidance Agreement (DTAA). This agreement is made between two countries and allows a foreign national to avoid paying on any income he or she earns in either country. Foreign nationals whose income could be taxed both in India as well as another nation could look to the DTAA as a way out of being doubly liable to pay tax on the income he or she has earned.
Foreign nationals in India are taxed based on their status of residence. This can be outlined as follows:
- Individuals who qualify as a resident of India for the purpose of taxation are liable to pay tax on the sum of their income earned throughout the world. This income could also include any remuneration paid to them in their own country.
- Individuals who qualify as Non Resident Indians or who qualify as Resident but not ordinarily resident (RNOR) are liable to pay tax only on the income they acquire within India. According to the Indian Income Tax Act, rules and regulations in respect to the status of residence of an individual state that the individual will be granted RNOR status over the 2 years post his or her arrival in India. All tax that the individual pays will only be paid on the income he or she earns while in the county.
Foreign nationals or expatriates are required to submit the following forms when filing their income tax returns in India:
- Form 16: This form will be provided by the employer of the concerned individual, and contains all information regarding the individual’s income as well as any deductions made from the individual’s income throughout the tax year
- TDS Certificate: The TDS Certificate is also called Form 16A. This form is provided by financial organisations and contain details regarding the tax that has been deducted at source on any other income earned by the individual.
- Bank Statements: Foreign nationals are required to provide bank statements showing all transactions made over the course of the taxation year. These transactions may consist of any investments, income accrued, expenditure etc
- Details of Property: Any property or asset sold within India will attract capital gain tax on the income received from the sale. Details regarding the sale of any property or asset in India will be required to be presented while filing Income Tax Returns.
- Investment Proofs: Individuals who have made any investments, which do not feature in their Form 16, are required to provide proof of the same.
Restrictions on managers and directors
Age restrictions – Schedule V of the Companies Act 2013 (Schedule V) requires that the following positions be filled by persons aged between 21 and 70 where they are appointed by a company:
- Managing director.
- Full time director (referred to under the Companies Act 2013 as a “whole time director”).
- Manager.
However, central government approval is not required if a special resolution has been passed by the company approving the appointment of a director who has reached the age of 70 years.
In addition, independent directors of listed companies must be at least 21 years of age.
Nationality restrictions – Generally, no specific restrictions apply provided that the foreign national is resident in India. However, where a foreign national is appointed as a whole time director or managing director:
- The foreign national must still comply with the requirements of Schedule V.
- The appointment must have the prior approval of the Central Government, unless he has been staying in India for a continuous period of not less than 12 months prior to the date of his appointment.
There are specific restrictions that apply to the telecom and broadcasting industry. Companies operating in these industries must ensure that the majority of their board of directors comprises of Indian nationals. Industries operating in the defence sector are required to ensure that a majority of their board of directors are resident Indians.
In addition, for security reasons, the Ministry of Home Affairs will vet the appointment of foreign nationals to the following positions:
- Chairman.
- Managing director.
- Chief Executive Officer.
- Chief Financial Officer.
Other – Only an individual can be appointed as a director or a manager. No person can be a director of a company if he is already a director of more than 20 companies (of these 20 companies, the director cannot hold directorship in more than ten public companies). Persons declared bankrupt or convicted of offences involving moral turpitude cannot be appointed as a director.
Employment Contract
It is not mandatory to enter into a written employment contract. However, certain industrial establishments employing the prescribed number of workmen must adhere to the model standing orders under the Industrial Employment (Standing Orders) Act 1946, which lays down certain conditions of service which must be uniformly implemented across the workforce who qualify as workmen.
Some statutes which regulate local businesses require prescribed particulars to be disclosed in writing to the employee. Where an employment contract is written, it will usually include the following:
- The employee’s position and duties.
- Remuneration including other benefits such as bonus, provident fund contributions, and so on.
- Working hours, holidays and leave provisions.
- Term of employment (where applicable) and termination provisions.
- Provisions for dispute resolution in relation to key employees.
Implied terms – Certain terms are implied into the employment relationship, including:
- Duty of fidelity.
- Duty of confidentiality.
- Duty to protect the employer’s property.
Collective agreements – Collective agreements are common in labour intensive sectors, particularly the manufacturing sectors, including:
- The automobile industry.
- The banking sector.
- The pharmaceutical sector.
Social Security Obligations for Expatriates in India
India’s social security system provides pension and retirement benefits to workers in factories and ‘covered establishments’ – defined as establishments employing 20 or more employees. The system is governed by the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (PF Act).
To protect the interest of International Workers India has signed bilateral Social Security Agreements (SSA) with 19 countries. Agreement operationalised with 16 countries. An SSA generally provides for “detachment”, “totalisation” and “portability
- Detachment -IWs are exempted from making contribution in the host country
- Totalisation – The service rendered abroad to be counted for benefits
- Portability – Benefits can be availed in either country
In 2008, the PF Act was amended to include a new category of employees called International Workers (‘IWs’) defined as follows:
- An Indian employee who worked or is going to work in a foreign country with which India has entered into a social security agreement (SSA) and is eligible to avail the benefits under the social security program of that country.
- An employee other than an Indian employee, holding other than an Indian Passport, and working for an Indian covered establishment.
Provident Fund Benefits
| SSA countries | Non-SSA countries |
| Eligible to withdraw on cessation of employment | Eligible to withdraw only on attaining age of 58 years |
| Indian bank account not mandatory | Indian bank account mandatory |
| Transfer of funds allowed | Transfer of funds not allowed |
Pension Fund Benefits
| SSA countries | Non-SSA countries |
| Entitled to monthly pension on retirement if 10 year contribution norm is met after totalization | Entitled to monthly pension on retirement if 10 year contribution norm is met |
| Home country contributing period is considered in determining total eligible period | Home country contributing period is not considered in determining total eligible period |
| Entitled to complete withdrawal even if 10 year contributory period after totalization is not met | No benefits if mandatory 10 year contributory period is not met |
The Employees Provident Fund Scheme, 1952 and Employees Pension Scheme, 1995 were both amended in 2008 to include ‘International Workers’, unless s/he qualifies as an “Excluded Employee.”
Excluded Employee is a “detached worker” employed in India, but contributing to the social security scheme of his/her source country, according to the provisions of a social security agreement (SSA) between the home country and India.
Detached Worker is an International Worker, not being an Indian employee, contributing to the social security scheme of the source country via the provisions of a social security agreement signed between the home country and India. Such a person is exempted from contributing to the Indian system for the period.
Employers are under a legal obligation to deduct the contributions and remit them with the Indian social security authorities within the specified time frame.
Employers are required to file a Form (IW-1) to report details of their international workers on a monthly basis. In case there are no international workers, ‘nil’ return must be submitted.
Contributions – An IW working in India prior to September 1, 2014 is required to contribute 12 percent of their salary towards the Provident Fund Scheme. The Employer will make an equal contribution of 12 percent with 3.67 percent allocated towards the Provident Fund Scheme and 8.33 percent towards the Pension Scheme. An IW who has joined on or after September 1, 2014 with monthly salary in excess of US$250 (Rs 15,000) is not required to be a member of the Pension Scheme. The cumulative employee and employer contribution of 24 percent of the monthly salary will be go to the Provident Fund.
Employers are required to deduct the social security contribution from the employee’s monthly pay and, after making a matching contribution of 12%, to deposit the sum with the Indian social security authorities/ fund by the 15th day of the following month.
Contributions are payable on the full salary where an international worker is on a split payroll. For converting foreign salary figures into the equivalent INR, the month end telegraphic transfer buying exchange rate, as published by the State Bank of India, is to be used. Employers’ contributions to Indian social security are not taxable in the hands of international workers. In relation to their own contributions, international workers can claim a deduction of up to INR 150,000 per annum from their taxable income in India.
IWs can claim their Provident Fund upon termination of employment in India. To determine eligibility, countries with whom India has an SSA have different conditions with respect to countries with whom there are no agreements. The “totalization of period” clause in an SSA allows the period of coverage in India and the period of coverage in the other country’s social security scheme to be aggregated in order to determine eligibility for pension benefits.
Calculation – In case of split payroll the contribution shall be paid on the total salary earned by the employee. Contribution is payable on the total salary payable on account of the employment of the employee employed for wages by an establishment covered in India even for responsibility outside India. The contribution shall be calculated on the basis of monthly pay containing the following components actually drawn during the whole month whether paid on daily, weekly, fortnightly or monthly basis:
- Basic wages
- Dearness allowance (all cash payments by whatever name called paid to an
- employee on account of a rise in the cost of living)
- Retaining allowance
- Cash value of any food concession
Every eligible International Worker has to be enrolled from the first date of his employment in India. There is no cap on the salary on which contributions are payable by the employer as well as employee.
Withdrawal Benefits – The EPF and the EPS provide detailed rules for withdrawal benefits.
Provident fund – An international worker can withdraw their accumulated balance in the provident fund in the following circumstances:
- Retirement from service in the establishment or after attaining 58 years of age, whichever is later.
- Retirement on account of permanent and total incapacity to work due to bodily or mental infirmity as certified by a prescribed medical officer/registered practitioner.
- When suffering from certain diseases detailed in the terms of the scheme.
- On ceasing to be an employee of a covered establishment, where the international worker is from an SSA country.
In cases where the international worker is from a SSA country, withdrawal from the provident fund shall be payable in the payee’s bank account directly or through the employer. In all the other cases, the amount withdrawn will be credited to international workers’ Indian bank account. Amendments have been made in the Indian regulatory framework to permit international workers to open Indian bank accounts in order to realise provident fund money.
Any lump sum amount withdrawn by international workers from their provident fund account on retirement or otherwise, after completing five years of continuous service in a covered establishment in India or under other specified circumstances is exempt from tax.
In all other cases, the employer’s contribution and interest earned on that contribution (both on the employer and employee’s share) is taxable in the year of withdrawal. Furthermore, where an international worker availed of any deduction for his/her own contribution during the past years, such deduction shall also be taxable.
Pension fund – Accumulated sum in the pension fund is paid as pension to employees upon retirement or in certain circumstances as specified in the EPS. International workers are not entitled to pension benefits from the pension fund unless they have rendered eligible service for a period of ten years. However, where international workers are covered under an SSA, early withdrawal /Pension benefit is possible.
The monthly pension received from the pension fund on retirement is taxable as employment income. However, commutation of pension payments are exempt from tax, subject to the following conditions:
- In cases of a receipt of gratuity, the commuted value of one third of the pension is exempt from tax.
- In other cases, the commuted value of one half of the pension is exempt from tax.
