Employee left India for the purpose of employment outside India – non resident if present for less than 182 days in India

Recently, the Authority of Advance Ruling (AAR) has held in the case of Shri Anurag Chaudhary (AAR No. 839 of 2009) that an employee who has left India for the purpose of employment outside India would qualify as a non resident, if he was present in India for less than 182 days during a financial year (From 1st April to 31^St March)  . Further, it was held that the salary earned on account of employment outside India would not be taxable in India.

 Facts of the case

• An employee of an Indian company (‘the assignee’) was posted outside India for the purpose of employment with the group company in the USA.
• The assignee left India on 31st March 2008 (financial year 2007-08) and returned to India on 29th November 2008 (financial year 2008- 09). He was present in India for 123 days during the financial year 2008-09.
• In the application filed before the AAR, the assignee claimed to be a non resident in the financial year 2008-09.
• No information was available regarding assignee’s stay in India during the four financial years preceding the financial year 2008-09 with the AAR.

 Issue before AAR

Whether the salary earned by the assignee by virtue of his employment outside India during the financial year 2008-09 was liable to be taxed in India?

Assignee’s contention before AAR

The assignee did not appear in person or through authorised representative before the AAR.

Department’s comments

The tax department clarified that the assignee may be treated as NRI as he remained in India for 123 days during the financial year 2008-09.

Decision of the AAR

• As per the provisions of the Act³, salary earned by the assignee on account of his employment outside India would be taxable in India, in case the assignee qualifies to be a ‘resident’ in India during the financial year 2008- 09.
• If the individual spent less than 182 days in India during a financial year and was outside India for the purpose of employment, then regardless of being in India for 365 days or more during four financial years, he cannot be treated as a resident of India.
• There is no information regarding assignee’s stay in India during four preceding financial years. In case the assignee was not present in India for more than 365 days in four preceding financial years, then provision of Section 6(1)(a)⁴ would apply and it requires stay of 182 days or more in India to be treated as resident.
• In case the assignee was present in India for 365 days or more during four preceding few years, then section 6(1)(c) read with Explanation (a) would apply and it requires stay of 182 days or more for a person who leaves India for employment outside, to be treated as resident of India.
• In the instant case, neither the provision of Section 6(1)(a) was applicable nor Section 6(1)(c) read with Explanation (a) thereto.
• Therefore, the assignee was a ‘non-resident’ during the financial year 2008-09. Accordingly, salary income earned on account of employment outside India is not taxable in India

Before Parting

In the instant case, the relevant facts in respect of an individual’s stay in the earlier financial years have not been placed on records and examined.

Further, it appears that the beneficial provision wherein 60 days is to be read as 182 days, in case of an individual who has left India in any financial year for the purpose of employment outside India has been applied not only in the year in which the individual has left India for employment, but also in the following financial year wherein he was outside India/ returned to India.

It is pertinent to note that generally a view is expressed that the said beneficial provision as provided in the said Explanation is applicable to the financial year in which the person leaves India for employment.

Therefore, facts of each case in respect of secondment agreements need to be examined in view of the general understanding and above ruling to determine the tax ability of assignees.