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Business News/ Money / Calculators/  NRIs’ income earned abroad is not taxed in India
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NRIs’ income earned abroad is not taxed in India

Salary earned from services outside India will be considered as accruing/arising outside India

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I am a seafarer employed with a UK-based company. I get my salary in dollars and the remittance is received in a non-resident external (NRE) account. There have been occasions when I could not stay outside India for 183 days in a financial year. Am I liable to pay tax on my salary or contractual earnings in foreign exchange in following circumstances: a) a financial year (FY) in which I maintain 183 days outside India; and b) the FYs during which I stay for more than 182 days in India? In both these circumstances, no earnings are generated in India.

—Siddhartha Mazumder

In case of a resident, the entire income, irrespective of where it is received or accrued or arises, will be taxable in India. However, in the case of a non-resident, the taxable income is restricted to income that is received in India or is deemed to be received in India or income that accrues or arises in India or income that is deemed to accrue or arise in India. If you qualify to be a resident in India, the entire income earned by you, including the salary income earned outside India but credited to your NRE account, would be subject to tax in India. However, subject to the provisions of the applicable double taxation avoidance agreements (DTAA) you may be eligible to claim credit of taxes paid outside India against your Indian taxes.

In case you qualify to be a non-resident, the salary income earned from services rendered outside India would be considered to be accruing/arising outside India and, therefore, would not be taxable in India.

However, the taxability of such salary income would also depend on whether it is considered to be received or is deemed to be received in India considering the fact that such income is credited to your NRE account.

The Agra bench of the Income-tax Appellate Tribunal (ITAT) in its recent judgment in the case of Arvind Singh Chauhan versus ITO (ITA No. 319 and 320/Agr/2013) held that the income earned by the individual from a shipping company and credited to the NRE account in India is not taxable as the same does not accrue or arise in India and cannot be deemed to accrue or arise in India as the services were rendered outside India. Further, the ITAT held that the income should also be considered to be received outside India as the assessee was in lawful right to receive the salary at the place of employment outside India, and as a matter of convenience the salary was thereafter transferred to India.

The relevance and applicability of this judgment would depend on the facts of your case. I suggest that you consult your tax adviser to understand the implications correctly.

Queries and views at mintmoney@livemint.com

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Published: 25 Dec 2014, 06:24 PM IST
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