Residents are liable for worldwide taxation, whereas non-residents are taxed solely on income earned within India.
An Indian court specializing in tax matters has declared that income tax is not applicable to services provided abroad by non-residents deputed by Indian employers, a decision with significant implications for the large number of Indian expatriates working overseas.
The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) rendered this judgment in a case concerning a senior employee of a company who contested the tax levied by Indian tax authorities. The case involved Devi Dayal, dispatched by his employer—an Indian firm specializing in digital technologies—to undertake a project in Austria. The Indian company sent Dayal's salary and compensatory allowance overseas, with Dayal having access to the allowance through an Austrian credit card.
During the assessment for the fiscal year 2016, the Income Tax Department added INR 2.18 million to Dayal's taxable income in India due to the absence of a tax residency certificate (TRC). The ITAT clarified that the term 'non-resident' for tax purposes is determined not by the individual's country of origin but by the duration of their stay in India. While residents are subject to global taxation, non-residents are only taxed on income earned or generated within India.
Tax experts emphasized that this decision highlights the idea that income earned by non-residents for services rendered outside of India, including salaries and allowances, is not subject to taxation in India. This landmark decision by the ITAT is expected to provide relief to numerous non-resident Indians working abroad who have been grappling with the complexities of tax regulations.
The ruling also brings clarity to the interpretation of tax laws regarding the taxation of income earned by non-residents. It highlights the importance of adhering to the legal framework and obtaining necessary documentation, such as tax residency certificates, to avoid unnecessary tax liabilities. Overall, the decision sets a precedent for future tax cases involving non-residents and provides a clearer understanding of their tax obligations in India.
