caalley logo

The alley for Indian Chartered Accountants

Salary earned by a 'non-resident' overseas cannot be taxed in India, tribunal rules

Feb 14, 2024

The Income Tax Appellate Tribunal (ITAT) ruled in favor of a salaried individual working abroad, stating that his overseas income should not be taxed in India. The case involved a non-resident employee who was deputed by an Indian company to work in Austria. The ITAT's decision emphasizes that income earned by non-residents for services performed outside India should not be subject to taxation.

In a recent decision, the Income Tax Appellate Tribunal (ITAT) provided relief to a salaried individual working outside India on his overseas income. The ITAT, Delhi bench, ruled that the salary income, inclusive of allowances, earned by a 'non-resident' for services rendered overseas cannot be subjected to taxation in India.

The case in question involved Devi Dayal, deputed by his employer – an Indian company specializing in digital technologies – to work on a project in Austria. Both the salary and compensatory allowance were disbursed overseas by the Indian company.The allowance was accessible to Dayal through a credit card valid only in Austria.

During the assessment for the financial year 2016, the Income Tax official augmented Rs 21.8 lakh to the income taxable in India due to the non-submission of the tax residency certificate (TRC) by the taxpayer.

Contrary to popular belief, the term 'non-resident' under tax laws is not determined by the country of origin but by the number of days spent in India. Residents are taxed globally, while non-residents are only taxed on income accruing or arising in India.

Amarpal Singh-Chadha, tax partner and India mobility leader at EY-India, told TOI that despite favorable rulings, tax authorities, particularly at lower levels, may challenge exemptions for salaries received outside India. Common reasons for litigation include non-furnishing of TRC or proof of taxes paid in the host country.

Singh-Chadha further explained that TRC is essential for non-resident taxpayers claiming exemptions under a tax treaty. However, in the current case, as the exemption wasn't sought under the tax treaty, furnishing the TRC was not obligatory.

This ruling by the ITAT reinforces the principle that income earned by non-residents for services performed outside India, including salaries and allowances, should not be subject to taxation in India.

[The Economic Times]

Read more on:
Don't miss an update!
Subscribe to our newsletter