Foreign expatriates working in India are subject to taxation on the remuneration received by them, which is assessable under the head ‘Salaries’. According to Section 9(1)(ii) of the Income Tax Act, this remuneration is deemed to be earned in India if it is payable for services rendered in India.
Income Earned in India
The explanation to the aforementioned law clarifies that income in the nature of salaries payable for services rendered in India shall be regarded as income earned in India. From assessment year 2000-01 onwards, income payable for the leave period which is preceded and succeeded by services rendered in India and forms part of the service contract shall also be regarded as income earned in India.
Irrespective of the residential status of the expatriate employee, the amount received by him as salary for services rendered in India shall be liable to tax in India as income accruing or arising in India, regardless of the place where the salary is actually received.
However, there are certain exceptions to the rule which are briefly discussed below.
Exceptions to the Rule
1. Remuneration of an employee of a foreign enterprise is exempt from tax if his stay in India is less than 90 days in aggregate during the financial year [Sec.10(6)(vi)]. This is subject to further relaxation under the provisions of Double Taxation Avoidance Agreement entered into by India with the respective country.
2. Remuneration received by a foreign expatriate as an official of an embassy or high commission or consulate or trade representative of a foreign state is exempt on a reciprocal basis [Sec.10(6)(ii)].
3. Remuneration from employment on a foreign ship provided the stay of the employee does not exceed 90 days in the financial year [Sec. 10(6)(viii)].
4. Training stipends received from a foreign government [Sec.10(6)(xi)].
5. Remuneration under co-operative technical assistance program or technical assistance grants agreements [Sec. 10(8) & 10(8B)].
Matters Pertaining to TDS made in Case of Non-Resident
When non-residents are deputed to work in India, and taxes are borne by the employer, any refund due to the employee after he has left India and has no bank account in India by the time assessment orders are passed can be issued to the employer, as the tax has been borne by it [Circular No. 707 dated 11.07.1995].
In respect of non-residents, the salary paid for services rendered in India shall be regarded as income earned in India. It has been specifically provided in the Act that any salary payable for rest period or leave period which is both preceded or succeeded by service in India and forms part of the service contract of employment will also be regarded as income earned in India.
Taxation of foreign expatriates working in India is governed by the provisions of the Income Tax Act. While the general rule is that remuneration received for services rendered in India is taxable in India, there are certain exceptions to this rule. Matters pertaining to TDS made in the case of non-residents are also outlined in the Act. It is advisable for foreign expatriates to seek professional tax advice to ensure compliance with Indian tax laws.