Some Exemptions For Expats
When the renumeration is reimbursed and not claimed in India, the benefit of exemption can't be denied
Expatriate exnployees are liable to pay income-tax in India on their entire salary income, whether received in India or outside India, for the period for which they work in India. This can create hardship particularly in those cases where the expatriates are deputed for short durations without any regular employment in India as, such. However, the Income-tax Act contains two major exceptions by virtue of which expatriates may not be liable to pay any tax on their salary income in India.
Section 10(6) (vi) provides that the remuneration received by an individual who is not a cit izen of India from his foreign em ployer will be free of income-tax provided the employee does not stay in India for more than 90 days.
The other major tax relief relates to those employees who are resident of a country with which India has made an Agreement for Avoidance of Duble Taxation not (AADT). The AADTs generally provide that the salary of an employee is taxable in the country of his residence. But in order to claim exemption from India tax, the following conditions should be fulfilled:
(i) The employee should not be present in India for more than 182 days in the relevant fuiancial year
(ii) The remuneration should be paid by a non-resident employer; and
(iii) The remuneration should not be borne by a 'permanent establishment' or a 'fixed base' of the foreign employer in India.
The major elifference between the aforesaid two tax concessions is that in the former case the foreign employer should not be engaged in any business in India, but in the later case, there is no restriction on business activities in India. But, the common feature in both the tax concessions is that the remuneration paid to the employee should not be claimed as expenditure by his foreign employer against any income in India.
There have been cases where the remuneration in the first instance is paid by a 'permanent establishment' of the foreign enterprise in india, but the same is reimbursed from outside India. Likewise, there could be such cases also where the remuneration is borne by the Indian permanent establishment but the same is not claimed as deduction against any income in India.
In a recent case before the Authority for Advance Ruling (238 IIR 155) the amount paid by the Indian subsidiary was reim bursed by its foreign parent company. The Authority held that it amounts to payment made by the foreign employer.
Therefore, where the remuneration is reimbursed and / or not claimed as expenses in India, the benefit of tax exemption cannot be denied to an expatriate employee.
There is yet another possibility, which in fact is quite common, that the salary of the employee is paid by the foreign enterprise but the facilities in India (e.g., house, transport, medical facilities etc) are provided by its Indian counter part. In such a case, as far as facilities are concerned, there is no employer - employee relationship.
Therefore, the value of facilities cannot fall in the category of salary income. It can only be taxed as "income from other sources"
All the expenses incurced for earning the said income have to be deducted from the cost of the facilities. It is only the 'income' part which could be brought to tax in India.