If you have ever heard the term PAYE income tax, you may be curious about what it entails, particularly if you are an Indian expatriate working overseas, say in the UK or another country. Although Indian tax terminology does not use PAYE, it is rather crucial for those who work abroad. Let us clarify PAYE income tax in plain terms.
FOR What Does PAYE Stand?
Pay As You Earn is abbreviated PAYE. Countries including the United Kingdom, Ireland, and New Zealand have this mechanism in place to gather income tax from salaried workers. Under this arrangement, your company automatically deducts tax from your salary each month prior to pay. It resembles India’s Tax Deducted at Source, TDS.
How Income Tax Paid by PAYE Works
Your company figures your tax owing based on your pay. They straightforwardly send it to the government after deducting it from your pay. Following tax deduction, your net pay is adjusted accordingly.
If you want a refund at the end of the year, you might still have to submit a tax return—as we do in India.
Why It Matters to Indians Living Away
As an Indian employed in a PAYE nation—such as the UK—you are already paying income tax from your pay. Here is what you should be alert for, though:
- Sending money to India does not result in further taxation.
- Should you make income in India—such as rent, interest, or capital gains—you might still have to file an income tax return there.
- DTAA, or Double Taxation Avoidance Agreement, may let you seek relief so you are not taxed twice.
Pay As You Earn vs Indian Income Tax Feature
| PAYE Countries (e.g. UK) | India System |
| TDS plus an annual ITR filing deduction | Monthly on behalf of the company |
| Monthly by TDS, your company | Not always necessary is filing return. |
| Not always necessary | Normally needed |
| For NRIs taxed overseas under PAYE | Only Indian income |
Notable Points of Interest for NRIs
- Living and working in a PAYE country will classify you as an NRI in India.
- Your foreign salary as an NRI is not taxed in India.
- Income gained in India is taxable, though; you might have to file an ITR there.
- Save your payslips, tax codes, and other records for documentation and filing’s needs.
Lastly
For many nations, PAYE income tax is a mechanism that simplifies tax payments for workers. For Indians employed overseas, it implies your company already handles your taxes. But be sure you know your tax obligations in both nations and, if necessary, apply DTAA benefits. In this sense, you remain compliant and prevent paying more than is advisable.