Indian employees working overseas often face litigation over taxation of their overseas salary income, if such salary is received in India. This is because a non-resident can be subjected to tax in India on that portion of the income which is received in India. The Income Tax Appellate Tribunal (ITAT) which adjudicates such tax matters, has in a recent decision held that merely because the salary was credited by a Singapore-based employer company to their employee’s NRE bank account in Mumbai, it will not trigger a tax incidence in India. The ITAT sought to distinguish between income received in India and an amount received in India.

Under tax laws, the tax incidence is based on the concept of residence, which in turn depends on the number of days stayed in India. So while a tax resident of India is subject to tax on his global income, a non-resident is subject to tax in India only under two situations, one of them being that income received in India is taxable in India. In this case, the employee who was working on a ship plying on international routes was a non-resident as he had spent less than 182 days in India during the relevant financial years relating to the matter being heard by the ITAT. So the ITAT rejected the contention of the tax department that the salary amount credited to the bank account in India should be subject to tax. The ITAT held: Connotation of income having been received and amount having being received are qualitatively different.

Gautam Nayak, an eminent taxation expert, says: “The ITAT in this order has highlighted a new aspect relating to income received in India. It has drawn a distinction by holding that salary income was not received in India as the employee had the lawful right to receive salary outside India. The salary amount was at the employees disposal outside India and he merely exercised his right to transfer it to India. India, with 1.42 crore migrants, is among the leading exporters of manpower, according to latest UN statistics. A large chunk of them constitute blue-collar workers. The practice of a salary credit either in full or in part to a bank account in India is more common in case of highly skilled workers. So it is important that employee agreements should be properly structured. If these agreements bring out the point that the salary for services rendered overseas is being credited to a bank account in India at the employee’s request for the sake of convenience, this ITAT decision could help mitigate litigation …” explains Nayak.

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