N. Suresh Column

In the Indian Income Tax Law, two conflicting issues arises for consideration when the expatriate receives remuneration in India as well as abroad. The remuneration received outside India, whether taxable in India?. When an employee is deputed or seeks an employment in India, but continues to receive salary income outside India question arises taxability of such income in India.

To answer, whether such income is taxable in India, the following steps will be helpful:

Step 1. First, determine the residential status of an employee. The residential status consists of “Resident”, “Non Resident” or “Not ordinarily Resident”.

Step 2. Verify the Double Taxation Treaty with the respective country in which the employee receives the remuneration under which India has an agreement with that country. Section 90 of the Income Tax Act provides to make an agreement with the Foreign Countries with the object of avoiding the double taxation. That is Contracting state and the Other state. In the Double Taxation Treaty there are many articles enumerated and one of the article deals with the salaries, Wages and other similar remuneration derived by a resident of a contracting state.

If there exists a Double Taxation Treaty then what has been mentioned over there, would be applicable.

Step 3. The Double Taxation Treaty recognizes that the remuneration derived by a resident of contracting state in respect of employment exercised in the other contracting state shall be taxable in the first mentioned state, provided it satisfies the following conditions: 1) The recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in the relevant fiscal year, and
2) The remuneration is paid by, or on behalf of an employee who is not a resident of the other State; and
3) The remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.
Step 5. Section 9 of the Income Tax Act 1961. Section 9 deals with Income deemed to accrue or arise in India. It enumerates the circumstances which income deemed to accrue or arises in India. Particularly Section 9 (1) (ii) deals with income which would fall under the Head Salaries. The explanation provided therein deems that when Salary is paid for services rendered in India shall be regarded as income earned in India notwithstanding payment in abroad.

Conclusion:

When a person is working in India or rendering services in India, the payment made outside India for the services rendered in India is taxable in India.

When the expatriate employees status remains of “Non resident” or “Not ordinarily resident” he will not be liable to pay tax in India. But when he becomes a resident he is liable to pay Tax in India on foreign income also.

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