Glossary
Hypothetical tax (hypo tax)
An estimated home-country tax withheld from a tax-equalised assignee's pay, standing in for tax they'd have paid had they stayed home — counterpart to the gross-up calculation.
Under tax equalisation, the employer withholds a hypothetical tax from the assignee’s pay each period, approximating home-country tax liability. It separately bears the assignee’s actual host- and home-country tax obligations.
The hypo-tax figure and the India gross-up calculation work together. Hypo tax keeps the assignee’s net pay stable relative to staying home, while gross-up ensures the employer, not the assignee, absorbs any additional India tax cost.
Why it matters now: hypo-tax tables need periodic review against current home-country rates. A stale hypo-tax figure quietly shifts real cost onto either the employer or the assignee.