Income tax on salary earned abroad

By Nonresident and when no taxes paid in abroad

Recently I was working on a particular case for one of my Clients an employee in Merchant Navy. He wanted to prepare his nil Income tax return, as he believed that because his stay in India was less than 182 his income cannot be taxed in India and no tax to be paid either in India or in any other country. He is not the only one, most of us think so. Professionals with knowledge of taxation will also express the same views, as his residential status for income tax purpose is Nonresident.

Is it right to do so?

If someone is earning Income he should definitely pay tax on it either in India or Abroad. The income cannot be exempted in both the countries. Even the Tax authorities in India think so and that’s why the decision given by Authority for Advance Rulings (AAR).

What`s this case about?

Mr. M was working in an Indian company and was a non resident for taxation purpose being out of india for more than 182 days. He was deputed to Norway .When he filed his Income tax return in India he showed this income as exempted and so did not paid any tax in India on that income as services were rendered out of India.

As per the Double taxation avoidance agreement Norway could have taxed the income, but no tax was either deducted by the employer nor paid by the employee in Norway . In such case the assessee cannot claim any relief. The decision is based on expression ‘may be taxed’ used in the treaty. Therefore Tax authorities stated different views as compared to those expressed in case of British Gas (I) Pvt. Ltd (British Gas India (P) Ltd. v CIT [2006] 157 Taxman 225 (AAR)) as here no taxes were paid in Norway. The Authorities stated that if taxes are not paid in other contracting state where services are rendered (i.e. Norway) it can be taxed in contracting state (i.e. India in our case)

Is it fair?

Yes it is fair, but I think some sort of relief should be provided (As deduction U/S 80 RRB - which is no longer applicable)while taxing this sort of income in India as in some countries the cost of living is high and even the salary may not be structured to result in lesser tax liability ( example medical reimbursements, HRA may not be stated and so no benefits can be taken).

In case on queries related to taxation contact me on e-mail ID:  info@adhauassociates.co.in