There is very good news for the NRI’s who are earning there and paying tax here or whose salary is paid in India. The Authority of Advance Rulings (AAR) has held that the salary income of a nonresident individual for services rendered overseas cannot be taxed in India, even when such salary is paid into a bank account in India.
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.
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 repay such as repayment of housing loan or household expenses (as the family could be in India).
The nomenclature is different under the tax law for an Indian residing abroad and a non-resident Indian. When it comes to tax laws then definitely the country of origin or the number of days stay in India, wont determine the things but there are different laws to be followed for the same.
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. Contacting a NRI tax service company that could give a better idea of the things would always be an additional benefit.
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