Non resident expats salary paid in India won’t face tax

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MUMBAI:  The ruling stands out because apart from providing relief from double taxation under the Indo-US tax treaty, the AAR additionally held that the sums received in India would not be taxable here under the domestic tax laws.
Unlike a tribunal or court order, a ruling by AAR, a quasi-judicial body, does not set a precedent. But it does have persuasive value and is well-considered. Thus, the ruling may benefit expat workers, in particular the over one lakh Indian workers who work in the US, largely on H1B visas.
Typically, when white-collared workers are ‘seconded’ on an overseas assignment by an Indian company, a split salary arrangement is worked out. Under ‘secondment’, the employee is transferred on the payroll of the overseas parent or group company, which pays the basic salary and certain allowances, in the overseas country. However, the Indian company deposits a part of the salary in the employee’s bank account in India. This enables the employee to meet certain obligations in India such as repayment of housing loan or household expenses (as the family could be in India).
While an Indian residing abroad is popularly referred to as a non-resident Indian (NRI), the nomenclature is different under tax laws. It is not the country of origin, but the number of days’ stay in India, which determine whether a person will be a resident or non-resident for tax purposes.
Resident individuals are taxable in India on their global income, irrespective of where it was earned. In the case of non-residents, only income that accrues or arises in India (say, bank interest from a savings account in India or rental income from a house in Mumbai) is treated as taxable in India (see table). There is a third category, that is, resident but not ordinarily resident (RNOR), for whom the tax incidence is the same as for non-residents. Thus, salary received by non-residents in a bank account overseas for services performed outside India is not subject to tax in India. However, salary received in India is considered as taxable under the Indian domestic tax laws (along with being taxed in the country where they are working as most countries adopt the source method of taxation). Typically, a split salary mechanism results in litigation, as income-tax (I-T) authorities seek to bring to tax the income received in India. In such cases, employees claim relief under a tax treaty, which ensures that the same income is not taxed twice,” says Maulik Doshi, tax partner, SKP Group, a consultancy firm.