NRI taxation: Allowances earned abroad may be tax exempt in India
The exemption from income tax is limited to the extent of amount of expenses actually incurred by the individual
I returned from Dubai in July 2017. My status is ‘resident’ for FY 2017-18. I need clarification for my overseas earnings. Under what sections, overseas allowances like house maintenance allowance, transport allowance earned in Dubai are exempted? Under what section, leave encash up to ₹3 lakh is exempted? Since I have calculated my tax liability after my repatriation to India, I paid advance tax in September and October. While filling up ITR2, it shows interest of ₹11,000 for late payment of advance tax. How can I avoid this interest?
As a ‘resident and ordinarily resident’ in India for the FY 2017-18, worldwide income is taxable in India irrespective of place of receipt. Overseas allowances maybe claimed as exempt from income-tax under Section 10(14) of the Income-tax Act, 1961 read with Rule 2BB of the Income-tax Rules, 1962 subject to satisfaction of the following conditions prescribed therein:
(a) The allowance is paid to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of office or employment of profit;
(b) The allowance is paid during the period while you are on tour and absent from normal place of duty;
(c) The allowance is paid to enable you to meet the ordinary daily charges incurred whilst away from home location; and
(d) The exemption from income tax is limited to the extent of amount of expenses actually incurred.
You may have to retain proof of expenditure such as invoices, bills, etc. Leave encashment maybe claimed as exempt from income tax under Section 10(10AA) of the Income-tax Act, 1961. The exemption will be lower of the following:
(i) ₹3,00,000 (Maximum amount as specified by the government)
(ii) Actual leave encashment received
(iii) 10 months’ salary (basis average salary of last 10 months )
(iv) Period of earned leave standing to the credit in the employee’s account at the time of termination of employment. Average monthly salary: Salary for the purpose of leave encashment means average salary for ten months immediately preceding the month of termination of employment. Salary includes basic salary, dearness allowance (if considered for computing all the retirement benefits) and commission based on fixed percentage of turnover achieved by the employee.
The period of earned leave will be based on number of years of completed service, number of leaves entitlement (maximum up to 30 days) and number of leaves encashed. If you have claimed any exemption from income tax for leave encashment earlier from your previous employment, the ceiling limit (i.e.,₹3,00,000) will be reduced by the amount of exemption earlier claimed.
The ITR-2 may be filed by a ‘resident and ordinarily resident’ who has income from more than one house property or income from capital gains or income from business or profession or any asset located outside India or any income from any source outside India.
Interest under Section 234C will be payable if the advance tax is not deposited as per the prescribed rate for instalments (15% of tax due by 15 June, 45% by 15 September, 75% by 15 December and 100% by 15 March). No advance tax is payable by an individual who is resident in India, of the age 60 or more years during the financial year and not having any business or professional income.
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Sonu Iyer is tax partner and people advisory services leader, EY India.
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