No Tax for NRI Salaried Overseas Tax Exemption Confirmed by Tribunal
Empowering Overseas Salaried Workers with Tax Exemption
The Income Tax Appellate Tribunal (ITAT) has rendered a key order exempting foreign income from Indian taxation, providing relief to a salaried individual employed overseas. In a ITAT’s landmark decision the Delhi bench declared that a “non-resident” who performs services outside India is not liable to pay taxes in India on their salary income or allowances.
Case of Devi Dayal: A Paradigm Shift
The case revolved around Devi Dayal, dispatched by his Indian employer, a digital technology firm, to work on a project in Austria. Both Dayal’s salary and compensatory allowance were disbursed overseas by the Indian company. Notably, the allowance was accessible to Dayal solely through an Austria-valid credit card.
Challenging Tax Assessments: Unraveling Tax Residency
During the fiscal year 2016 assessment, Income Tax officials augmented Dayal’s taxable income in India by Rs 21.8 lakh. And citing the absence of a tax residency certificate (TRC) from the taxpayer. Tax residency determination relies on the duration of stay in India, not nationality, contrary to common assumptions.
Navigating Tax Regulations: Insights from Experts
Amarpal Singh-Chadha, tax partner and Indian mobility leader at EY-India, emphasized that despite favourable rulings, tax authorities may contest exemptions for overseas salaries, particularly at lower levels. Challenges often stem from the non-submission of TRCs or evidence of taxes paid in the host country.
Clarifying TRC Requirements: Upholding Legal Precedents
Singh-Chadha elucidated that TRCs are crucial for non-resident taxpayers seeking exemptions under tax treaties. However, as the exemption wasn’t sought under a tax treaty in Dayal’s case, furnishing the TRC was deemed unnecessary.
IATT’s Verdict: Affirming Non-Taxation of Overseas Income
The ITAT’s ruling reinforces the principle that income earned by non-residents for services performed abroad, encompassing salaries and allowances, should remain untaxed in India.
Setting Precedents for Taxation Norms
The ITAT’s landmark decision provides respite for overseas workers. It underscores the need for clarity in tax regulations governing non-resident income. As India navigates its stance on global taxation, such rulings are pivotal in shaping its fiscal landscape.
