Companies that have employed high-paying expatriates may have to set aside an amount equal to as much as 74% of such executives’ take-home salaries to pay tax, so as to insulate them from a budget proposal to increase the surcharge on super-rich taxpayers.

This is because of the pay structures that many of the expat executives work out with their employers, to ensure that they won’t be affected by changes in tax rates.

While moving to India, most expatriates bargain on the net, or after-tax, salary, say industry trackers. When there is a change in tax rates, their employers adjust their gross salaries and pay the tax on their behalf.

With finance minister Nirmala Sitharaman proposing to increase the surcharge on income tax, the effective tax rate on those earnings Rs 2-5 crore is set to go up to 39%. For those with income of over Rs 5 crore, the outgo on tax will be as much as 42.74%.

The companies will have to absorb the extra tax outgo.

For instance, to keep unchanged the net salary of a person earning RS 5 crore, the employer will have to increase his gross salary to about Rs 8.7 crore — the difference RS 3.7 crore, or equivalent to 74% of the net pay, goes toward income tax. Based on the current effective tax rate of 35%, the gross salary needs to be only Rs 7.7 crore to ensure the net pay at Rs 5 crore — here, the tax outgo will be equal to 54% of the take-home salary.

To be sure, only a handful of expat executives in India earn salaries of over Rs 2 crore. The companies that have such executives will see an increase in the salary bill, said experts.

The increase in the surcharge would hit companies that hire expats and bear the tax liability on behalf of them, said Amit Maheshwari, a partner at Ashok Maheshwary & Associates.

Tax experts said several companies employing expats have already started planning for this.

A profit making company can set off some of the taxes paid against their profit, but the loss making ones can’t do that. “For companies which are incurring losses or have brought forward losses, availing 10 (Section 10CC) exemptions for expats on grossing up of taxes could help minimise this impact,” said Maheshwari.

Industry insiders said some companies might also ask the high-paying executives to take the hit on themselves.