SECTION 80RRA u REMUNERATION RECEIVED FOR SERVICES RENDERED OUTSIDE INDIA
612. Conditions subject to which deduction under the section is to be allowed/Queries re. interpretation and applicability are clarified/Procedure for securing deduction explained
CLARIFICATION 1
1. Section 80RRA was inserted with effect from 1-4-1975 by the Finance Act, 1975. Under this section, a resident Indian citizen receiving the remuneration from the Government of a foreign State or a foreign enterprise or any association or body established outside India for any service rendered by him outside India was entitled to a deduction, in the computation of his taxable income, of an amount equal to 50 per cent of such remuneration. This deduction was admissible only in the case of Government employees and technicians. The Finance (No. 2) Act, 1977 has substituted this section by a new section with the object of extending, with effect from the assessment year 1978-79, the scope of the concession to remuneration received by Indian technicians, etc., employed outside India by Indian concerns as well.
2. The deduction under section 80RRA is admissible if the following conditions are fulfilled :
(1) The recipient of the remuneration should be a citizen of India.
(2) The remuneration would be received in foreign currency from any employer, being the Government of a foreign State or a foreign enterprise or an association or body established outside India or an Indian concern.
(3) The remuneration must be for services rendered by the employee outside India.
(4) Where the employee is a Government servant, his services outside India should be sponsored by the Central Government and, in any other case, he must be a technician and the terms and conditions of his service outside India should be approved by the Central Government or the prescribed authority for the purposes of section 80RRA. (The authority to grant approval has been entrusted to the Foreign Tax Division in the Department of Revenue in the Ministry of Finance.)
For this purpose, the expression ‘technician’ means a person having specialised knowledge and experience in :
(i) constructional or manufacturing operations or mining or the generation or distribution of electricity or any other form of power; or
(ii) agriculture, animal husbandry, dairy farming, deep sea fishing or ship building; or
(iii) public administration or industrial or business management; or
(iv) accountancy; or
(v) any field of natural or applied science (including medical science) or social science; or
(vi) any other field for which the Board may prescribe in this behalf, who is employed in a capacity in which such specialised knowledge and experience are actually utilised.
(The only field prescribed by the Board for the purposes of item (vi) so far is the field of journalism.)
(5) Where the employee renders continuous service outside India under an employer for a period exceeding 36 months, no deduction is admissible in respect of the remuneration for services beyond that period.
3. The Board have received a number of queries regarding the interpretation and applicability of the provisions of section 80RRA. These are clarified as under :
Question 1 – Whether the approval of the Central Government to the terms and conditions of service outside India for the purposes of section 80RRA is enough for granting deduction under that section ?
Answer – No. The approval of the Central Government to the “terms and conditions of service” in the case of “technicians” is only one of the several conditions for purposes of admissibility of deduction under section 80RRA. In other words, the assessing officers while considering the claims for deduction under section 80RRA should not allow the same as a matter of course without verifying as to whether all the other conditions prescribed under section 80RRA are also fully satisfied by the assessee.
Question 2 – Is it necessary that the relationship of employer-employee/ master-servant must exist between the assessee and the payer of the remuneration to be eligible for deduction under section 80RRA?
Answer – Yes. It is necessary that the relationship of employer-employee/master-servant should exist between the assessee and the payer of the remuneration. Individuals who render service outside India in the capacity of independent contractors or consultants, etc., are not eligible for the deduction under section 80RRA.
Question 3 – Whether masters, mates, captains, etc., working on a ship can be regarded as “technicians” for the purposes of section 80RRA ?
Answer- Having regard to the course content of the certificate of competency granted by the Ministry of Transport to such officers and the actual duties performed by them, masters and mates, marine engineers and radio officers qualify as “technicians” as they have specialised knowledge and experience in an applied science. In view of the above, seamen working as marine engineers, radio officers, masters, mates, pursers or captains are to be regarded as “technicians” for the purpose of section 80RRA and they qualify for the tax concession.
Question 4 – Whether the employees engaged as “helpers” to masons with the construction companies can also be regarded as “technicians” within the scope of section 80RRA?
Answer – The Board are advised that the test to be applied in such cases is whether the same work could have been done by any other person without any experience in constructional activities as efficiently as by the applicant. Helpers to masons, who assist in concrete mixing, RCC work, etc., and other persons similarly placed will, therefore, be regarded as “technicians”.
Question 5 – Whether a seaman, who is employed by an Indian concern and goes out on a voyage for some period and thereafter comes back and goes again for certain period under the same employer, is entitled to deduction under section 80RRA even though the aggregate period of his service outside India exceeds 36 months?
Answer – The Board are advised that the crucial expression in the proviso to section 80RRA(1) is “renders continuous service outside India under or for such employer” If there is any break in service, it cannot be said that the individual had rendered continuous service outside India for the entire period comprised in the two terms. If the service is for a period not exceeding 36 months, there is no bar to the same individual claiming the deduction in respect of any subsequent employment after he had served the same employer. This position has been accepted by the Board.
Question 6 – Whether a person who renders continuous service outside India for more than 36 months, but under different employers, is entitled to deduction under section 80RRA ?
Answer – In a case where the services outside India are performed under different employers, the periods of service under these employers cannot be clubbed together so as to deny the benefit of deduction as the services under different employers would be under different agreements.
Question 7 – Whether the ‘advances’ paid to the seamen employed by the Indian shipping companies in foreign currency while in foreign ports could be considered as remuneration received by the seamen in foreign currency for the purpose of section 80RRA ?
Answer – Having regard to the provisions of section 101(4) of the Merchant Shipping Act, 1958 and the agreement entered into between the Indian National Shipowners’ Association and the Maritime Union of India, such advances are not mere facilities or loan but are in the nature of part payment of wages in foreign currency. Remuneration received by seamen outside India in foreign currency for services rendered outside India would, therefore, qualify for deduction under section 80RRA.
Question 8 – What is the procedure for obtaining the approval of the Central Government to the terms and conditions of service outside India in the case of technicians ?
Answer – For obtaining the approval of the Central Government to the terms and conditions of service outside India in the case of “technicians” every person has to file an application in Form ITNS 186 (copy enclosed) in triplicate to the Foreign Tax Division in the Department of Revenue in the Ministry of Finance, as the work for the grant of approval has been entrusted to the Joint Secretary in charge of the Foreign Tax Division. The application has to be accompanied by certified copies of the document evidencing the terms and conditions of service of the applicant. On receipt of such application, before granting the approval, the Central Government considers whether the applicant can be regarded as a “technician” within the meaning of section 80RRA(2)(ii). Further, the letter of approval issued by the Central Government clearly specifies the assessment year or the period for which the terms and conditions of service outside India have been approved, in the case of each individual applicant. One copy of the letter of approval is addressed to the applicant and two copies are forwarded to the Commissioner of Income-tax having jurisdiction over the case of the former. The purpose behind forwarding two copies of the letter of approval to the concerned Commissioner of Income-tax is that one copy may be retained in his office and the other copy be sent to the ITO having jurisdiction over the case of the applicant.
Circular : No. 356 [F. No. 517/2778/82-FTD], dated 17-3-1983.
ANNEX – APPLICATION UNDER SECTION 80RRA FOR APPROVAL OF CONTRACT OF SERVICE [ITNS 186]
1. (a) Name
( b) Whether citizen of India
( c) Address
( d) Permanent Account No.
( e) Status – Whether resident/not resident/not ordinarily resident
2. Name and address of the foreign employer. (Also state if the employer is a foreign Government or parastatal organisation)
3. Nature and type of the job
4. Date of commencement of employment with the foreign employer
5. Probable duration of employment under the foreign employer
6. Details of remuneration and mode of payment. (pay, allowances, amenities, etc.)
7. Details of technical qualifications, including specialised knowledge and experience in constructional or manufacturing operations, etc. [See Explanation (c) to section 80RRA]
8. How was the employment secured: Whether direct or through Government channels ?
9. Whether the applicant is/was a Government servant in India immediately before taking up employment abroad? If so, particulars of the post held
10. Whether there is any contract of service for the job with the foreign employer and, if so, a copy thereof may be appended ?
11. Assessment year in relation to which approval is sought
12. Remarks
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Date………….
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Signature of Applicant
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INSTRUCTIONS
1. The application should be made to the Foreign Tax Division, Department of Revenue, North Block, New Delhi- 110 001 well in time. It will be in the applicant’s own interest to obtain Government’s approval under section 80RRA of the Income-tax Act, 1961 before taking up the appointment under a foreign employer.
2. The application should be submitted in triplicate and should be accompanied by certified copies of the contract of service, if any, with the foreign employer.
CLARIFICATION 2
1. Liability to pay income-tax depends on the residential status of the tax-payers as determined in accordance with the provisions of section 6. Indian technicians, etc., who work for a short period during any financial year with a foreign Government or a foreign enterprise are liable to Indian income-tax if they are “resident” in India for tax purposes in that year. In this situation, the whole of the remuneration received by them from the foreign employer becomes taxable without any allowance in respect of expenditure incurred by them out of such remuneration for meeting higher living costs and other essential expenditure in foreign countries.
2. To relieve this hardship, section 80RRA was inserted by the Finance Act, 1975 which provides that a deduction equal to 50 per cent of the remuneration received by such persons from a foreign Government or foreign enterprise or any body or association established outside India will be allowed in the computation of taxable income. This deduction will be available only to citizens of India in cases where remuneration received by them is includible in their gross total income. In cases, where the employee renders continuous service abroad for more than 36 months, the remuneration received by him for any period of service after the expiry of 36 months will not qualify for this deduction.
3. In the case of employees of the Central Government or any State Government or persons who were immediately before taking up service under the foreign employer, in the employment of Central Government or any State Government, the deduction will be allowed ifthe service of the employee is sponsored by the Central Government.
4. In the case of persons other than Government employees, the deduction will be allowed only if the individual is a technician and the contract of service with the foreign employer is approved under section 80RRA by the Central Government. For this purpose, a person will be regarded as a technician if he has specialised knowledge and experience in any of the following fields and is employed by the foreign employer in a capacity in which such specialised knowledge and experience are actually utilised :
a· constructional or manufacturing operations or mining or the generation or distribution of electricity or any other form of power;
b. agriculture, animal husbandry, deep sea fishing or ship building;
c. public administration or industrial or business management;
d. accountancy;
e. any field of natural or applied science including medical science or social science; and
f. any other field which the Board may prescribe in this behalf in the Income-tax Rules.
5. The applications for the Govemment’s approval are to be made to the Foreign Tax Division, Central Board of Direct Taxes, Department of Revenue and Banking in the prescribed form, copies of which can be obtained from the Foreign Tax Division.
6. In the case of employment in a developing country in Asia, Africa or Latin America, the application is also to be accompanied by a certificate of no objection from the Department of Personnel & Administrative Reforms. It is in the applicant’s own interest to submit the application well in time and obtain Government’s approval under section 80RRA of the Income-tax Act, 1961 before taking up the appointment under a foreign employer.
Press Note : Dated 3-10-1976, issued by Press Information Bureau.
