Introduction:

In India, the tax incidence is based on the residential status of the person. As stated in the provisions of the Income Tax Act, 1961 income received or deemed to be received in India is taxable in India. And this provision brings ambiguity for many Indians who are working overseas and receive income in an Indian account. In this article, we discuss the chargeability of salary income accrued outside India but received in India.

Taxability of income for Non-resident:

Section 5 of the income Tax Act states the provisions that “Income accrued or received in India by a non-resident is taxable in India”. In simple words; Non-residents are required to pay tax in India in two cases –

  • Income is accrued or arises India or deemed to accrue or arise in India or
  • Income received or deemed to be received in India.

On the plain reading the provisions it could be concluded that in the case of a non-resident salary amount received India, even if he is rendering services outside India (employment is overseas ) it will be subject to tax in India.

Non-resident seafarer receiving salary in an Indian account:

Clarification regarding liability to income tax in India for a non-resident seafarer receiving remuneration in NRE (Non-Resident External) account maintained with an Indian Bank. Circular No. 13/2017 Dated 11-04-2017

CBDT vide above mentioned circular clarified that “Section 5(2)(a) of the Income-tax Act provides that only such income of a non-resident shall be subjected to tax In India that is either received or is deemed to be received in India. It is hereby clarified that salary accrued to a non-resident seafarer for services rendered outside India on a foreign ship shall not be included in the total income merely because the said salary has been credited in the NRE account maintained with an Indian bank by the seafarer.”

In simple words, a non-resident seafarer rendering services on a foreign ship but receiving salary NRE account maintained in India, is not taxable in India merely because it is received in India.

Non-resident receiving salary in an account maintained in India:

CBDT clarified the position only in the case of non-residents seafarers who are rendering services on foreign ships but for the non-residents who are rendering services outside India not being a seafarer, it is still a matter of litigation. However one can put reliance on the decisions of ITATs and High courts for clarity. Here are some judgments in this regard :

1. ITAT Agra in the case of Arvind Singh Chauhan Vs. ITO (I.T.A. No.: 319 and 320/Agr/2013) Dated: 11/02/2014 held that “Just receipt of Salary Income by an employee (working in a Ship plying on International routes, Run by Singapore based Shipping Company), in NRE Bank Account in India, will not trigger a tax incidence in India.”

ITAT emphasized on “The connotation of an income having been received and an amount having been received are qualitatively different. The salary amount is received in India in this case but the salary income is received outside India“.

The decision of the ITAT highlighted the new aspect of the “Income received in India”. In this case, ITAT observed that employee has lawful right to receive the salary amount at the place of employment i.e. outside India. And he merely exercised his right to transfer it to India.

2. The Kolkata bench of ITAT in Tapas Kr. Bandopadhyay v. DDIT (ITA No. 70/Kol/2016) held that merely the receipt of salary by a non-resident individual in his Indian Non-resident External (NRE) account for services rendered in outside India is not taxable in India on a receipt basis under the Act.

The ITAT, consider that the place where services have been rendered is relevant for determining whether  income of a non-resident is taxable in India or outside India.

ITAT held that since the services have been rendered outside India the salary income has accrued outside India and accordingly, the same will not be taxable in India on subsequent receipt.

3. DCIT Vs Chukkapalli Mallikarjuna (ITAT Visakhapatnam) Held that it doesn’t matter whether the income is credited to NRE account or NRO account. The facts remain that the seafarer rendered service outside India for which salary accrues there and salary amount is remitted in Indian Bank account maintained by the appellant, then the same is out of the purview of sec. 5(2)(a) of the Act and not taxable.

4. Prasanth Nandanuru v. Income-tax Officer (International Taxation)-2 – [2023] 150 taxmann.com 183 (Hyderabad-Trib.)

Assessee, an individual, was an employee of Wells Fargo (EGS) India Pvt. Ltd (“Wells India”) and was sent on a short-term assignment to Wells Fargo Bank N.A., USA (Wells USA). During his short-term assignment to Wells USA, the assessee made on the payrolls of Wells India.

His salary for the services rendered was credited to his Indian bank account by Wells India after deducting tax at source. Assessee claimed that he was a tax resident of the USA and, therefore, eligible to avail the provisions of the India-US Double Taxation Avoidance Agreement (DTAA). He claimed that the income earned from services rendered in the USA was only taxable in the USA and not in India.

Therefore, because of residence in the USA, the assessee is not liable to income tax in India regarding the salary he derived from his employment in the USA.

Conclusion:

It can be concluded that Salary income is accrued to a non-resident outside India but the amount is credited to his account maintained in India not liable to tax in India. Income tax cannot be charged on this salary income merely on the basis that amount of salary is received in India. It is still a matter of litigation, for deciding the taxability so it is advisable to seek professional help.

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