What is the difference between tax equalisation and tax protection?
Equalisation keeps the employee in the position they would have been in had they never left: the employer bears the actual home and host tax on the assignment, and deducts a hypothetical home tax from the employee as though they were still working at home. Protection is weaker and cheaper. It only ensures the employee is not worse off than at home, so if the assignment happens to leave them in a lower-tax position they keep the benefit. The two read almost identically in a policy document and produce very different employer costs across an assignment.
What is the hypothetical tax deduction on an assignee's payslip?
It is not a tax. It is the amount the employee would have paid at home had they stayed, deducted from their pay so that their take-home is unchanged by the move. The employer then bears the real home and host taxes. Because it is a policy figure rather than an assessment, it has to be computed on stated assumptions — which income is included, which deductions and credits are recognised, what family position is assumed — and recomputed once the actual year is known. The settlement between employer and employee is the difference between the two.
Why does the cost of equalisation keep rising after we calculate it?
Because the tax the employer bears on the employee's behalf is itself compensation. Bear the host tax, and the host country treats that as further income, which attracts more tax, which is again compensation. The cycle converges rather than running forever, but it has to be taken to its settled point before the employer's real cost is known. Quoting an assignment cost from the first pass understates it, sometimes substantially. That is why the modelling belongs before the assignment letter is signed, while the package can still be structured, rather than after.
Can the assignee keep a tax refund under a protection policy?
Under protection, generally yes, and that is the difference the employee is buying. Protection only shields them from being worse off than at home, so a favourable outcome stays with them. Under equalisation it does not: the employer has borne the actual tax, so refunds and credits arising from the assignment belong to the employer, and the policy has to say so and set out how they are collected. Most arguments at the end of an assignment are about precisely this, and they are decided by what the policy document and the assignment letter say.
Which policy should we choose for a short outbound assignment?
Cost and administration usually decide it. Equalisation gives the employee certainty and gives the employer an open-ended liability that has to be modelled, gross-up cycle included, and settled after each year. Protection caps the employer's exposure to the downside only, and needs a comparison calculation rather than a full hypothetical deduction every period. The harder question is consistency: running both across one population invites arguments between assignees on similar packages, so the choice is better made by assignment type and written down than taken case by case.
What happens to the equalisation settlement after the assignee comes home?
The assignment cost is not final on the return date. Home and host returns for the assignment years are filed afterwards, refunds and credits arrive later still, and the hypothetical calculation is only recomputed once the actual position is known. The settlement between employer and employee therefore falls due some time after repatriation, and it can run in either direction. A policy that does not state a settlement deadline, a currency and an interest position leaves the employer chasing amounts from someone who has already moved on.
What counts as foreign income, and what is a foreign tax?
Foreign income is income sourced outside the country you are filing in — where the work was done, where the property sits, where the payer is resident, depending on the type. A foreign tax, for credit purposes, is a levy imposed by another country that functions as an income tax and that you were legally required to pay. Consumption taxes, property taxes and most social contributions are not, however real the cost. Sourcing is decided by rule, not by which bank received it. See the foreign tax credit.
Do NRIs pay tax on money sent to India?
Sending your own funds to India is a transfer of capital, not income, so the remittance itself is not taxed. What is taxable is income the money then earns in India — interest, rent, capital gains — under the rules for the account type it sits in. Sending money out of India is the direction that needs certification before the bank will act. See NRE, NRO and FCNR accounts.
