Introductory
Sometimes, Indians (NRIs, OCIs, Others), who are working abroad, for the sake of convenience or need or some other reasons, receive their salary income in a bank account maintained in India (NRO or NRE or Resident Account).
In abovementioned situations, question arises whether foreign salary, which is earned abroad (i.e., services rendered outside India), will be taxable in India if it is received in India in a bank account in India. Here comes section 5 of the Income Tax Act 1961 (‘Act’), where provisions say that Non-resident income can be taxable in India if it is accrued/deemed accrued or it is received/deemed received in India. Hence, it opens a scope of taxability and litigation for Non-residents where they receive their foreign salary income in a bank account in India. It has created a scope of litigation between Income Tax Department and taxpayer. Hence, in many cases matter has reached to courts. Different Courts have decided and interpreted various provisions of laws differently. Some have decided in favor of taxpayer and some has not, depending on the facts of the case. Courts have also given various principles in deciding the matters.
In many cases, courts/tribunals have held that merely receipt of income in a bank account in India cannot be a deciding factor of taxation. In case of foreign salary, courts have examined and interpreted the provision of section 5, section 6, section 9, section 15, and DTAAs. It was also considered that taxpayers has full rights and control to receive their salary in a bank account outside India. Hence, why to tax the same in India as it is just received in India.
Hereunder are discussed some of those cases, where Courts/Tax Tribunals have clearly held the matter in favor of assessee and decided that foreign salary cannot be taxed in India on the ground that it is received in a bank account maintained in India.
Yogesh Kotiyal vs ACIT (ITAT Delhi) ITA No 391/Del/2023: AY 2020-21
| Background of the Case | ITAT Delhi Judgement |
| Assessee (Yogesh Kotiyal), who was working as an employee with Nokia Solutions and Networks India Pvt Ltd. He was sent on deputation to Australia in Aug 2017, and he worked in Australia till March 10, 2020, for Nokia Australia. | There is no dispute about residential status being Non-resident of the assessee. |
| Being employed and stayed in Australia, as per the provisions of Income Tax Act 1961, he was a clearly a Non-resident in FY 2019-20, i.e. year in question. | ITAT held that salary cannot be taxable in India merely on the ground that it is received in India and TDS is deducted thereon in India. |
| However, for the sake of need and convenience, he received his salary in a bank account maintained in India. For safer side, employer deducted TDS also on the salary income. | ITAT held that the deciding factor is residential status and place of services where employment was excercised. So the services were clearly performed outside India i.e. in Australia. |
| Assessee filed an ITR claiming exemption of Australian salary (Rs 55.37 Lakh). Assessee claimed exemption under clause 15(1) of Dependent Personal Services of India-Australia DTAA. | ITAT further pointed out that as per Indo-Australia DTAA also, for Australia resident, salary income from Australia employment will be taxable in Australia only. |
| AO issued notices u/s 143(2) in June 2021 and passed order in December 2022 disallowing the DTAA exemption for Australian salary of Rs 55.37 Lakh. | ITAT has also referred Delhi ITAT judgments in case of Vishal Gulati vs. ACIT [2024] 159 Taxmann.com 713 and Anjali Puri vs. ACIT [2024] 159 Taxmann.com 603 and Ahmedabad ITAT judgment in case of Sunil Chitranjan Muncif (2013 58 SOT 356) where it was held that foreign salary shall not be taxable in India on the ground of its receipt in India if services rendered outside India. |
Partha Mukherjee vs ITO [2025] ITA No 2041 & 2042/Kol/2024
| Background of the Case | ITAT Delhi Judgement |
| Question was raised before the ITAT for two AYs i.e. AY 2014-15 and AY 2015-16. | ITAT held that the salary income shall be considered accrued at the location where the services are physically rendered. Hence, in the given case, because services were rendered outside India, therefore, income was accrued outside India. |
| During the respective FY, Assessee (Partha Mukherjee) was employed with a Indian company name IBM India Pvt Ltd. However, he was deputed by Indian company to outside India. Hence, assessee was physically working outside India. | ITAT held that there was no dispute regarding assessee residential status, i.e. assessee was clearly a Non-resident as per the provisions of Income Tax Act. |
| Partha was paid a total in two parts. One part was paid in India, i.e., Basic Salary component (₹12,41,552/-) and other part was paid outside India i.e. Assignment Allowance (₹12,04,529/-). | ITAT decided that since the services were rendered outside India, hence, entire salary is outside the scope of taxability in India, and allowed the appeal in favor of assessee. |
| On investigation of the ITR, IT department raised demand on assessee in relation to the component which was received in India. Revenue pointed out that assessee could not provide TRC (Tax Residency Certificate), hence, income received in India is taxable in India. CIT Appeal also confirmed the demand raised by the AO. | ITAT further held that non-production of TRC was just a procedural lapse, which cannot deny the substantive fact that the services were rendered outside India, hence, income accrued outside India. |
| In the concerned year, Partha Mukherjee stay in India was Nil, hence, there was no dispute that he is a Non-Resident (NR) for the relevant Assessment Year, which was duly confirmed by the CIT Appeal as well. | ITAT has also referred Kolkata ITAT judgement in case of Sudipta Maiti Vs DCIT, decided on July 11, 2018, where it was held that in case of a non-resident, if he earns income outside India, it cannot be taxable in India u/s 5(2) of Income Tax Act. Hence, place of service is deciding factor for taxability of income. |
Sudipta Maiti Vs DCIT ITA No 428, 416 & 425/Kol/2017
| Background of the Case | ITAT Delhi Judgement |
| In the concerned Fin Year, i.e., 2012-13 (AY 2013-14), assessee (Sudipta Maiti) was in outside India (in Switzerland) for 331 days. Hence, assessee was clearly a Non-resident in India in the concerned year. | ITAT held that assessee is a non-resident in the concerned year. And the key principle for taxability of a Non-resident income in India would be accrual of income in India. In the given case, assessee accrued income outside India as the assessee rendered services at a place outside India. |
| Sudipta was working with IBM India Pvt Ltd in India and was sent to Switzerland for a short-term assignment. | Appellate Tribunal further held that money which is credited to TCC (Travel Currency Card) cannot be considered as money received in India. This TCC (though issued by an India Bank), however, this TCC was usable outside India only. |
| During the respective FY 2012, her employer, IBM India, paid her two components i.e., Rs 6,77,128 was paid in India, and Foreign Allowances Rs 51,84,489 was paid outside India. Foreign Allowances were paid to assessee via Axis Bank International Travel Currency Card (TCC), which was usable only outside India. | Tribunal dismissed the IT Department appeal. ITAT favored assessee and held that in the given case, neither the income was accrued in India nor it is technically received in India. Hence, there is no question of taxability of it in India. |
| IBM has deducted TDS in India on the entire salary (including Foreign Allowances). | |
| Assessee (Sudipta Maiti) filed her ITR in India and offered 5,73,320/- as taxable income (i.e. Salary paid in India after claiming deduction) and claimed refund for balance TDS. | |
| IT department denied the exemption for the Foreign Allowance. They argued that since the Foreign Allowance was routed through Indian bank, i.e, Axis Bank, via Travel Currency Card (TCC), hence, effectively foreign allowances were received in India only. | |
| CIT appeal denied the addition made by AO and allowed the appeal in favor of assessee. On the same, Revenue filed appeal before ITAT. |
Non-Resident Tax, FEMA and Other Laws Services – By NRI Tax Service Team (Offices in all major cities Delhi NCR, Bangalore, Mumbai, Chennai, Kolkata, Hyderabad, Chandigarh, Indore, Lucknow, etc)
Non Resident Income Tax Notices
If a Non-resident faces some income tax notices under section 148, 148A, 142(1) or FAIU Black Money Act Notice, NRI Tax Service litigation team can assist in handling those notices and filing suitable responses. Our team can also assist in filing appeal in those cases where tax authorities pass the one-sided orders against the taxpayers.
Many NRIs, Other Non-residents time to time do remittance of their funds from Indian NRO account to outside India or to NRE Account. To enable this NRO account outward remittance, Bank requires reporting to Income Tax Authorities via Forms 15CA and 15CB. We, NRI Tax Service Team, since past 20 years providing this service to Non-residents and advising & guiding them needful planning around these remittances, as well reporting to Income tax department, i.e, Forms 15CA 15CB.
Lower TDS Deduction Certificate Services (Form 13) For NRIs, OCIs
When a Non-resident plan to sell a property in India, then as per the applicable provisions of section 195, buyer is under obligation to deduct TDS at the higher rate (without giving consideration to the cost of the property). Hence, to provide relief to Non-resident seller, Sec 197 provides a mechanism where seller can apply for a Lower TDS Certificate via Form 13. Inc Tax authority evaluate the facts and, after giving effect of cost of property, a lower TDS rate certificate is issued. Buyer cannot then deduct TDS as per the rates mentioned in the certificate. Hence, Non-resident avoids blocking of funds via TDS with tax department. Our tax team provides all assistance around sale of property and applying Lower TDS Certificate.
NRIs Working Abroad – Receipt Of Salary Income Into NRE Bank Account In India – Not Taxable In India