Income tax

Hi

I am working at client location at Dubai through my Indian employer from more than 1 year.

My Indian employer does not has any local branch in Dubai, hence they are paying me salary through remittance from hdfc bank, india to my dubai local account.

My employer is deducting only Provident Fund from my salary and remaining amount is transferred to Dubai local account without any income tax deduction.

My question is whether salary received in Dubai, but originated from India is taxable in India or not?

Your advice would be really appreciable. Thanks in advance !
Asked 1 year ago in Income Tax from New Delhi, Delhi
The income financial year is taxed in the asst year. based on your stay in India. For salary to become taxable in India, you should be resident in India for period of 182 days in the financial year. Once your stay in India  during the financial year is 182 days then you become resident in India and taxable in India. From the details given it is not clear, whether this is your first assignment outside India or otherwise.  To determine taxability, we should have full details of you stay in India and abroad. be 
Vijay N. Kale
CA, Hyderabad
248 Answers
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In India the income tax is charged on the basis of the residency and source rule . In the case of the person earning the income through salary , the source will be the place , where he or she is physically present . In this case , since you are serving the employment at a place outside India , hence your salary due to such employment is not taxable in India . So the employer is deducting only social benefits and then paying you the whole amount without TDS.

Now , since you are rendering employment in Dubai, your income will be taxable in Dubai . This is irrespective of the fact that you are getting payment from an employer from India and your salary is paid in INR and then transferred to your Dubai account . However in Dubai , the tax rate is low or is exempted .

Hence your salary is not taxable in India .
 
Prakash Sinha
CA, Delhi
112 Answers
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Hi,
As you are working at client Location but your firm is Indian based firm,as per Sec 9 of Income tax act your salary is deemed to accrue or arise in India & hence chargeable to tax in India.

Also your employer needs to deduct tax on your salary.
Shyam Sunder Modani
CA, Hyderabad
955 Answers
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As per section 6 of the Income tax act , which is mechanism to determine the residential status of a person for tax purpose , In the FY 2014-2015 you were in India only for 10 days . ( considering your submission ),  Since your stay was not more than 182 days in India , you satisfy the criteria of being a non resident .  Since your non resident , your salary should not be taxable in India . So in case of TDS , you can file the ITR and claim the refund for the FY 2014-2015 .
For FY 2015-2016 , you are a non resident and the employer is right by non deducting the TDS on the salary .
Prakash Sinha
CA, Delhi
112 Answers
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You are a Non Resident and hence the income earned by you abroad is not taxable in India. However, if there is any Indian connection, implying that the income earned by you could be interpreted as the income earned in India by reason of work that is directly or indirectly related, it may be argued that the income arises in India though you physically worked in Dubai. Probably that is the reason why your employer deducted TDS from your salary treating it as Indian income. You need to file IT Return in India and claim refund if you have a case to prove that your salary is not accrued in India. 

As your employer started paying your entire salary without deduction of Income tax, is there any change in your nature of work that makes him to treat that your salary is not Indian income? 

One more issue that needs to be addressed is that your employer is deducting PF from your salary. The interest earned on PF and withdrawals are income earned in India but exempt u/s 10(11) and (12) of the Income Tax Act, provided the PF is a recognized PF. I hope this aspect is taken care of by your employer.

B Vijaya Kumar
CA, Hyderabad
290 Answers
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Your stay in India during financial year 2014-15 is 9 days and you become a person not ordinarily resident in India and your salary is not taxable in India. You can prove your residential status by producing endorsements in your passport about your stay in India was less than 182 days. There is no separate form for NRI to claim refund of Income Tax.
Vijay N. Kale
CA, Hyderabad
248 Answers
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In our view the following is the gist which was arrived taking into consideration all your queries : 

Just because the income from service rendered in India is taxable in the country it is not necessary that the reverse would be true in all cases. There is a difference in the manner in which the salary and the various perquisites and allowances are taxed in some cases so these have to be separated when necessary. However a condition where there is service that is rendered outside India and the employer is the government of India and the employee is a citizen of India then the income received outside India would still be considered as having arisen in India and taxed in the country. Several conditions are important here with the first being that this classification is for salary received and not other heads like allowances under the head of salaries. The next condition is that the employer has to be just the government of the country and the person needs to be an Indian citizen if the condition of the citizenship is not met then once again the income would not be considered to have been arisen in India.

There are other cases too where the service is rendered outside India and in this case the employer could be any other entity other than the government of India. In such a case the salary income would not be considered to have arisen in India. This is a clear distinction that arises due to the fact that the employer is not the government and the services are rendered outside India. In this case even if the person is an Indian citizen then the overall conditions would be applicable and hence there would not be any income that arises in the country. Once the basic distinction is made then the additional way of taxation of the income arises and this would then have to be followed.

This is the answer to your first query.

In your other case where the Employer has deducted TDS and issued form 16 the following view are expressed :

Double taxation shall arise when an individual is taxed on the same source of income in more than one country. Both the domestic tax laws and Double Taxation Avoidance Agreements (DTAA or tax treaty) entered into by India with various countries provide relief to Tax Residents to mitigate double taxation.
The domestic tax laws provide the mechanism of claiming relief — bilateral (where DTAA exists) and unilateral (where no DTAA exists). But in cases where the individual qualifies a NR, there will not be any relief when deputed to a country with which India does not have a DTAA. With Dubai India is having DTAA Agreement.

As per various rulings it is held that as per the DTAA, since the employees are drawing their salary in respect of the employment being exercised outside India, the salary shall be taxable only in that other state.
The Indian company is not required to deduct tax at source u/s 192 of the Act even if the salary is delivered in India.

You can file your Tax returns under NRI Category and claim relief for the Tax already deducted. No seperate form is there for NRI.

This views are only as per our own knowledge of the subject and can differ from others.
Shyam Sunder Modani
CA, Hyderabad
955 Answers
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Dear Tax Payer,

Issue 1: Residential Status
------------------------------
As per section 6 (1) (a) & 6 (1) (c), you are not satisfying both the conditions for being a resident ie; staying in India for more than 182 days. Hence, you are a non-resident for the FY 2014-15 and hopefully for FY 2015-16.

Issue 2: Taxability of Salary FY 2014-15
-----------------------------------------
As per section 5 (2), the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which—
(a)  is received or is deemed to be received in India in such year by or on behalf of such person ; or
(b)  accrues or arises or is deemed to accrue or arise to him in India during such year.

I understand from your query that for the FY 2014-15, you have received the salary in INR in your Indian bank account. Hence, you are satisfying the condition prescribed u/s 5(2)(a). Hence, the salary for the FY 2014-15 is taxable in India. Your employer is correct in deducting the TDS.

Issue 3: Taxability of Salary FY 2015-16
----------------------------------------------
W.e.f.1 April 2015, you are receiving the salary directly into your Dubai Bank Account. Hence, you are not satisfying the conditions prescribed u/s 5(2)(a). 
Also, the salary which has been received by assessee from Indian employer by offering his services rendered outside India cannot said that such income is accrued or arisen or is deemed to accrued or arisen to him in India during such year. Hence, it is not satisfying the conditions u/s 5(2)(b) as well.

The same was held in the case of CIT v. Avtar Singh Wadhwan, wherein the Bombay High Court has held that income from salary, in the case of even an Indian vessel operating in international waters is to be treated as having accrued outside India. Again in the leading case of DIT v. Prahlad Vijendra Rao, the Karnataka High Court has held that, salary earned by a non resident for services performed during his stay of 225 days outside India, working on board of ship, does not accrue or arise in India. Accordingly, the same is not taxable in India.

Conclusion:
-------------------------
FY 2014-15 - Due to receipt of salary in INR in Indian bank account, as per section 5 (2)(a), salary is taxable in India.
FY 2015-16 - Since you are receiving the salary directly into your Dubai bank account, salary is not taxable in India.

Regards,
CA. Rajeev P T
Partner
Rajan Chakravarthy & Associates, Chennai
Email: ca.rajeevpt@gmail.com

*****This Opinion is based on stated facts and the legal position as on date. The views expressed may not be relevant where there is any change in facts or law. This Opinion is not in the nature of an assurance that an alternative view or interpretation cannot emerge.
Rajeev P T
CA, Chennai
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Your appointment letter wherein it will be mentioned that your place of posting will be out of India , along with passport  showing immigration stamp of departure and arrival will prove that you were outside India . 

Now all the ITR are filed online and no enclosure can be attached , you have to properly claim all the above at the time of assessment . Your can file the ITR in the SAHEJ form and can claim the refund of the  tax paid  by way of TDS .
Prakash Sinha
CA, Delhi
112 Answers
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Since your income was received in Indian bank account for F.y 2014-15, hence it will be taxable.
For F.y 2015-16, you can claim exemption since you are receiving amount in Dubai Bank account.

For further queries, you can write to us at ca.skagarwal@gmail.com
Shiv Kumar Agarwal
CA, Delhi
195 Answers
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It is the responsibility of your employer to determine your tax liability and deduct tax accordingly. He should be able to justify why he would like to take a different stand now. 

If your employer has deducted tax by mistake for FY 2014-15, you can file your return claiming your correct residential status and refund of tax.,
B Vijaya Kumar
CA, Hyderabad
290 Answers
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