Background

Many Indians, who live and work abroad, sometimes receive their income in relation to their work in Indian Bank Account. There may be different reasons and circumstances for receiving money into Bank Account in India. All these person hold Non-resident status in India under the Income Tax Law. Hence, the fact is that they are Non-resident (NRIs, OCIs) who earn abroad but receive their salary in Indian Bank Account. In many cases, it is beyond control of these non-residents to receive their income in a bank account outside India. Now, question arises due to a provision of Indian Income Tax Law which says that an income can be taxable in India if it is received in India. On this, in various cases, Courts have interpreted the section and various situations differently and hold their judgement in favor of taxpayer.

In many cases, Courts has interpreted various provisions of Income Tax Act, and consequently held that Non-resident’s foreign salary cannot be taxed in India on a single ground that it is received in Indian bank account. Court has held that taxpayer has full control of their salary outside India and they could have received it outside India. Hence, merely receipt in India cannot be a trigger point of taxation. Hereunder are explained some case laws, where court has held in assessee’s favor.

Pramod Kumar Sapra, New Delhi vs Ito, Panipat – ITA No 5965/DEL/2015 – Pronounced on Oct 30, 2017 by Delhi ITAT

Facts: Financial Year 2010-11. Assessment Year 2011-12. Assessee was deputed from as Country Manager in Iraq by his employer (Reliance Industries Ltd, Mumbai). However, assessee received his salary income in a bank account in India. Employer deducted the TDS on Salary paid to assessee during the year. Assessee stay in India was less than 182 days, hence, he was a Non-resident as per the provisions of section 6 of Inc Tax Act. IT Deptt picked up the ITR for scrutiny assessment, however, AO accepted the ITR (including exemption of salary earned during deputation in Iraq). The Principal CIT picked up the case u/s 263 and passed a revisionary order. PCIT denied the exemption of Iraq salary on the ground that it was a deemed receipt u/s 5(2) as it was received in India bank account and also TDS was deducted by the employer in India.

ITAT Held: On appeal filed with Delhi ITAT, Tribunal held in favor of assessee on following grounds

  • That there is no dispute that taxpayer is a Non-resident. IT Authorities have not denied it.
  • As per sec 5(2), it clearly says that income earned/accrued in India will be taxable in India. However, this section does not provide clarity in relation to an income which is earned outside India and received in India. In the given case, it is very clear that income is earned/accrued outside India.
  • TDS deduction cannot be a determining factor for taxability of an income.
  • AO order was not prejudicial to Revenue interest, hence, it was incorrect to be picked up u/s 263.
  • Tribunal held that in this case, salary income earned outside India is not taxable in India.
  • Appeal was allowed in taxpayer favour.

Arvind Singh Chauhan, Gwalior vs Assessee – ITAT Agra – ITA No 319-320/AGR/2013 – Pronounced on Feb 11, 2014

Facts: Assessment Year 2008-09, 2009-10. Assessee (an Individual) works on merchant vessels for Singapore company (Executive Ship Management Pte Ltd, Singapore ‘ESM’)). In lieu of services rendered on ship on international waters, Singapore company was remitting salary to assessee’s HSBC NRE Account in Mumbai. Without any dispute, taxpayer India stay was less than 182 days, therefore, he was clearly a Non-resident as per Inc Tax Act provisions under section 6. In his ITR filing, assessee has included his pension income (from previous employer in India) and Interest income as taxable and have not included his Singpore employer salary income for taxation.

His ITR was selected for scrutiny assessment. AO considered that assessee is Resident u/s 6(5) of Inc Tax Act (on his own admission) for pension income and interest income, hence, he will be considered resident for foreign ship salary income also and the same should be taxable in India. AO also pointed out that ESM has issued appointment letter to assessee through their agent in India. On these grounds, AO passed the order by including ESM salary in his total income.

ITAT Held: On appeal filed ITAT, Agra Tribunal held the appeal in favor of assessee on following grounds

  • That the salary was earned as well it was received outside India.
  • Assessee is a Non-resident, which was not disputed even by IT Authorities.
  • Reference to Sec 5(2) of Income Tax Act, income is taxable in India if it is received/deemed received or accrued/deemed accrued in India. Since, assessee rendered the services outside India, it falls outside the taxability of Indian jurisdiction.
  • In case of Non-residents, foreign salary cannot be taxable because the assessee is an Indian citizen.
  • Tribunal has also denied the Inc Tax Authorities claim that salary was taxable because it is credited in HSBC Bank in Mumbai, India. Tribunal explained the law of income ‘receipt’ and stated that it is received at first occasion when & where it comes first under assessse’s control. Tribunal explained that assessee has full lawful rights to receive the salary outside India at the place of employment. Salary was duly paid in US dollars by the employer. Hence, it was received outside India. Receiving in India Bank was just a subsequent transfer of salary at the wish of taxpayer. Money was already received outside India by the assessee before it was transferred to HSBC Bank in Mumbai.

ITAT Delhi Bench (2024): In Devi Dayal, Kaithal v ACIT International Tax, Gurgaon – ITA No 835-836/DEL/2023 – Pronounced on January 18, 2024

Facts: Assessment Year 2016-17, 2017-18. Assessee (Devi Dayal – an Individual) was working for M/s Datamatics Global Services Ltd. He was deputed to work on a project in Vienna, Austria. The salary and the compensatory allowances were paid to the assessee at Vienna from the company in India. All the allowances were permissible to be utilized through a credit card which is valid only in Austria. Assessee was a Non-resident as per Inc Tax Act (as per section 6 provisions). Assessee filed ITR without disclosing income of salary and allowances received from his employer Datamatics Global Services Ltd. Under section 147 assessment proceedings, The Assessing Officer has made additions of salary and allowances on the grounds that assessee did not furnish tax residency certificate (TRC).

ITAT Held: On appeal filed with Delhi ITAT, Tribunal held the appeal in favor of assessee and decided:

  • Tribunal have examined the payment of salary by Indian company salary to a non-resident with reference to the Income Tax Act Provisions under sections 5, 9 and 15.
  • Tribunal held that as per combined reading of provisions of sections 5, 9(1)(ii) and 15 of Income Tax Act, Income under the head ‘Salary’ can be taxable in India if it is earned in India (i.e. services are rendered in India). Since, in the given circumstances, services are rendered outside India, hence, there is no accrual or deemed accrual of salary income in India. Hence, it is not taxable in India
  • Tribunal also held that there is no dispute that assesee is a Non-resident in India.
  • Hence, in case of Non-resident, salary which is not earned in India, is not taxable in India.
  • Appeal was allowed in favor of assessee.

FAQs – Foreign Salary Received In India By Non-Residents – Tax Implications In India – Judicial Pronouncements

Q – I am an NRI and a Non-resident in India as per Indian Tax Provisions. I came to Singapore from Coimbatore (India). I am employed in Singapore. For the sake of need of funds in India for my family expenses, I am receiving my Singapore salary directly in a bank account in India. Would it be taxable in India?

Ans – Refence to Agra Tribunal judgement in the case of Arvinder Singh Chauhan, it can be said that since taxpayer has full control of his salary income outside India in Singapore, and if chosen he could have received the salary outside India as well. Hence, applying same principle in your case Singapore salary received in India should not be taxable in India just because it is received in India.

Q – I am an Indian (from Indore). I was employed in a company in Kolkata since last 7 years. Last year, I have been sent on deputation to Germany. My salary is being paid by my Indian employer in a bank account in India. My employer deduct TDS also on same. My present employment terms clearly mention my place of work outside India in Germany. I am Non-resident as per the tax provisions of Income Tax Act. Can I get my TDS deducted in India back by filing ITR in India.

Ans – Yes, you can file ITR and claim TDS back. Principles set up in many court judgements are supporting you. Eg Delhi ITAT in case of Pramod Kumar Sapra, New Delhi vs Ito, Panipat – ITA No 5965/DEL/2015 held that Salary earned by Non-resident for services rendered outside India cannot be taxed in India just because it is paid by Indian employer in a bank account in India. It was also held that TDS deduction cannot be a ground for taxability determination. Similar principals were also laid down by the Delhi ITAT in Yogesh Kotiyal, New Delhi vs Acit Circle Int Tax in a judgement pronounced on 12 April, 2024.

Q – Can it be clearly said that foreign salary will not be taxable in India if it is received in India as Courts have decided it in favor of assessee in may cases?

Ans – No. Every case has different facts. And different courts (at different point of time) on the basis of facts of the cases decide the cases. There are many cases where foreign salary was made taxable in India on ground of its receipt in India despite it was earned outside India. E.g. in the ase of Tapas Kr Bandopadhyay, Kolkata ITAT held foreign salary taxable in India on the ground that it was received in India.

Non-Resident Taxation, RBI Laws Services – By S Lohia & Associates NRI Service Team