Went Abroad For Work : Tax Consequences

Shantanu is working for an IT company in Bangaluru. Last year he got an opportunity to work on a project abroad. He received the foreign currency as well. But little did he know about how that foreign salary income will be taxable in India. Well, he is not alone to dwell on this question. The important thing for Shantanu to understand first is the difference between citizenship of a country and residential status. This two are separate concepts. For taxability purpose one needs to consider Residential Status and residential status is determined on the basis of physical presence of an individual in India during the Financial Year. Your income is taxable with regard to residential status. In case of income earned abroad, if you are taxable outside India, you can take benefit of DTAA (Double Taxation Avoidance Agreement)

Determine your Residential Status First:

An individual is said to be Resident in India for the financial year if any of the following condition is satisfied:

• He/She is in India for a period of 182 days or more in that financial year. OR
• He/She is in India for 60 days or more during that financial year and has been in India for 365 days or more during 4 previous year immediately preceding the relevant financial year. (In case you leave India for the purpose of employment outside India then consider 182 days instead 60 days.)  

For computing the period of stay, it is not necessary that the stay should be for a continuous period. Seeing the total number of days stayed in India is mandatory. Moreover, staying in one place is not a requirement. You can go anywhere in India. Read our  guide on residential status to know more.

First Receipt of Income is Important:

For the purpose of charge of Income Tax, what is significant is the first Receipt of Income. Remission for any amount received outside India. Then in that case, money remitted to India would not make it an income received in India. Say Mr. X who is non-resident receives income of 80,000 USD and then remits it to India. This income earned and received outside India is not taxable.

Let’s take a scenario to understand:

Aditya went to US for a project work from 15th December, 2015 to 15th April, 2016 and received salary outside India. Before this he never went outside India. What will be the tax consequences on his income for Financial year 2015-16?

Here, Aditya stayed in India for a period of 182 days or more during the FY 2015-16. Hence, he will be considered resident and ordinary resident of India and his global income would be taxable in India. Moreover, Aditya’s Indian salary income and US salary Income would be subject to tax in India.

Benefit of DTAA (Double Taxation Avoidance Agreement):

Although Aditya’s US salary will be taxable in India, he would be given relief for any taxes paid in US for salary earned there. As the name suggests, India has entered into Double taxation avoidance agreements with many countries to make sure that a person’s income is not taxed twice in two different countries.  So here in Aditya’s case, if salary is taxed in US then credit of taxes paid in US on such income may be claimed in India under the Double Taxation Avoidance Agreement (DTAA) entered between India and US. The benefit of double taxation is provided broadly in two ways i.e; Exemption from double taxation method and Tax Credit (Relief) method.

As far as tax benefits are concerned, Aditya as an ordinary resident of India would be eligible to get the benefits of all the deductions and exemptions available under Income Tax Act to resident individual in India.

Here is a guide for you to know more about NRI and Foreign Income