What are special provisions related to foreign nationals under income tax law

SPECIAL PROVISIONS RELATING TO FOREIGN NATIONALS AND NON-RESIDENTS
There are several tax concessions available to the employees who are not citizens of India, as discussed hereunder:

Where stay in India does not exceed 90 days.- The remuneration received by an employee of a foreign enterprise for services rendered by him during his stay in India is entirely free of tax provided the following conditions are fulfilled.

1. The foreign enterprise is not engaged in any trade or business in India;
2. Employee’s stay in India does not exceed 90 days in the previous year; and
3. Such remuneration is not liable to be deducted from the income of the employer chargeable to tax in India.

Employee on a ship.- Any remuneration received for services rendered in connection with his  employment on a foreign ship provided the total stay in India does not exceed 90 days in the previous year. The employee concerned, for the purposes of this exemption, should be a ‘non-resident’.

Tax paid by the employer.- In case of certain categories of employees who fall within the definition of ‘technician’ as given under section 10(5B0 of the Income Tax Act, the employer is allowed to pay the tax  on behalf of the employees, and tax so paid is not considered as income of the employee concerned.

Passage Money.- In case of employees who are not citizens of India the passage moneys or the value of any free or concessional passage paid or provided by the employer is exempt  from tax for the employee, his spouse and children. The exemption applies for the passage money given in connection with the employees’ proceeding on home leave out of Indialadki ke bare mein nahi pooch rahi, or in connection with his proceedings to his home country out of India after retirement from service or on termination of services.

ALLOWANCES & BENEFITS
As per section 10(14)(i) any special allowance or benefit granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit are not subjected to income tax in India. It may be noted that the special allowance or benefits referred in this section should not fall is the category of ‘perquisites’ as defined in section 17(2) of the Income tax Act. In other words, generally speaking, the allowance or benefits, which are given to meet the personal expenses will be taxable. But  the allowances or benefits meant for performance of official duties are not taxable, within the limits prescribed in the Income-tax Rules. The special allowances which are free of tax have been prescribed under the Income-tax Rules to include the following:-

1. cost of travel on tour or on transfer;
2. ordinary daily charges incurred by an employee on account of absence from his normal place of duty;
3. conveyance expenses incurred in performance of official duty;
4. the cost of a helper provided the helper is engaged for the performance of official duties.
5. Uniform for wear during the performance of official duties.

Sub-clause (ii) of section 10(14) also grants exemption in respect of the allowance granted to meet the personal expenses at the place where the duties of employee’s office or employment of profit are ordinarily performed by him, or at the place where the employee ordinary resides, or to compensate him for the increased cost of living. The said personal allowance is however free of tax only to the extent as prescribed under the Income-tax Rules, 1962. Rule 2BB(2) specifies the limit of tax free allowance. The amounts of tax exempted allowances are small figures, not significant from the point of view of  expatriate employees.

Overseas Allowance/Living Allowance.- Various types of allowances could be paid to expatriate employees either by their foreign employers or their Indian counterparts for  meeting their personal expenses in India. Such allowances may be called by different names like overseas allowance, living, daily allowance etc. Besides the allowance, employees could also be provided with certain facilities like residential accommodation or a hotel; transport facilities including provisions of cars, free medical treatment etc.
For determining the tax liability of the employee in India, the legal position may be different if the allowances and/or facilities are provided by the foreign enterprise in the capacity of employer, or where the allowances/facilities are paid for the Indian parties without any employer-employee relationship.
Allowance/Facility by foreign employer: When the allowance is received by an employee from his employer, the same is generally taxable in India unless specifically exempt from tax.
As has been stated in para 5 above, the amount received by an employee for the purpose of official duties will not be taxable, but where any allowance or facility is availed by an employee to meet his personal expenses, the same will be subjected to tax in India. However, the taxable value of the various types of facilities will be determined as per the Income-tax Rules. (See para 3.2).
The allowance or facilities would also be free of tax if the stay of employee in India is for less than three months and certain other conditions in this regard are full filled.  (See Para 4.1 and 4.2).
Where, however, the employee is a resident of a country with which India has an Agreement for Avoidance of Double Taxation [“DTAA’] the taxability will be determined as per the provisions of the DTAA. (See Para 6 below).
Allowance/Facility by Indian party: It is quite common that certain allowances and facilities are paid/provided to expatriate employees by the Indian parties directly. Where the expatriate employees are in regular employment of the Indian party, the taxability of allowances and facilities will be determined as per the normal law. Where, however, the person concerned in the employment of a foreign enterprise, the allowances or facilities paid/provided by the Indian parties may create some confusion because there is no employer-employee relationship between the Indian party and recipient of the allowance and facilities. In such a situation, various Courts in India have taken different views. It will, however, be safer to assume that the allowances and facilities will be taxable in India.