Expats with Qualifying Recognised Overseas Pension Schemes (QROPS) living or working in India picked up a tax bonus in a recent Delhi High Court ruling.
The judges decided that employee contributions to overseas pensions were not taxable, providing the employee was not receiving a current benefit from the scheme but saving for a future retirement.
The case – Yoshio Kubo and others against the Commissioner of Income Tax – also clarified several other tax issues for expats in India.
Confusion cleared up
Besides the pension decision that includes QROPS, other rulings included:
- Employer contributions to overseas social security or private medical insurance are not taxable
- Tax paid by the employer on rent free accommodation is excluded while working out the value of the housing
- Hypothetical tax withheld from expat salaries is not taxable under tax equalisation
- Tax deducted at source refunds are not taxable
- Employer costs like paying for expat tax returns are exempt from tax
The issue before the court was whether tax borne by employers for expat employees was a non-monetary perquisite – a benefit that should be taxed – and whether employer contributions to overseas social security was taxable.
Landmark ruling
International accountants KPMG explained the case was a landmark ruling in Indian tax law.
“This affects a wide range of tax issues for expat workers and their employers in India,” said a spokesman.
“The judgment confirmed the rules that should be applied on three main issues, namely grossing up benefits, taxing employer contributions to offshore social security and hypothetical tax.
“The court also took other expat pay issues into account that were at the root of arguments between employers, expats and the tax authority. The ruling clarifies many of these issues and gives expat employers and their workers a lot more certainty of how benefits are taxed in India.”
India is one of the top expat destinations in Asia and was recently voted among the best countries for enjoying the expat lifestyle in the region.
QROPS clarification
Many British expat workers in India have QROPS pension schemes and the ruling aids their retirement planning as any further contributions into their pension funds are now outside the tax system.
The long-running case represents a major overhaul of how expats in India are paid and is seen as a boost to attracting more top talent to the country by bringing how overseas workers are taxed into a more competitive line with other countries vying to bring the best qualified expats into the country to boost the flagging economy.
There is always a BUT though is’nt there ?
Any ex-pat state pension will be frozen and have no increases ever. ie No indexing thanks to successive governments who choose to discriminate against pensioners in certain countries. This is the problem that Steve Webb was going to fix ! Instead, now as Pensions Minister he has fixed all other pensioners retiring to certain countries where the government see fit to rob the pensioners still and continue the discrimination.
When we get trustworthy politicians in these responsible positions I have no doubt that things will change, so the next election cannot come fast enough.