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How the income earned by expatriate employee in india is taxable in india
The expatriate employees will generally receive a salary, allowances and facilities in India for their services rendered in India. It may first of all be clarified that income by way of salary is deemed to accrue or arise in India, if it is earned in India. Therefore the salary income earned in India would be taxable in India whether the expatriate is a resident or non-resident or not ordinarily resident. According to section 9(1)(ii) the income of the following nature shall be considered as income earned in India-
- if it is payable for services rendered in India;
- the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment.
It may also be mentioned here that the term ‘salary’ includes, amongst others, wages; any annuity or pension; any gratuity; any fees, commission, perquisites or profits in lieu of or in addition to the salary. The term ‘perquisites’ includes facilities of accommodation; facility of transportation; the value of any benefit or amenity granted or provided free of cost or at concessional rates, any sum paid by the employer in respect of any obligation, which, but for such payment would have been payable by the employee. Perquisites also include the value of any specified security allotted or transferred free of cost or at concessional rate. The specified security includes the shares under employee’s stock option and sweat equity shares. Profits in lieu of salary include the amount of any compensation due or received from the employer on termination of employment or modification of the terms and conditions of the employment.
In some cases a part of salary and other allowances, facilities, may be paid or provided outside India. In certain other cases the entire salary may be paid outside India and only allowances and facilities may be paid or provided in India. There may be yet another class of employees whose salaries are paid by foreign employers but the facilities and allowances in India are paid or provided for by their India counter parts. In all such cases there may be some confusion in clearly ascertaining the amount of taxable income in India. The various common problems that generally arise are dealt with in subsequent paragraphs as a general guide.
Payments made outside India:- It has been clarified in section 9 of the Income-tax Act that salary will be treated as taxable in India if it relates to the period of service rendered in India. Therefore, where an individual remains in India by way of any employment, his salary income for that period will be entirely taxed in India whether the sum is paid or received in India or not. It is a wrong notion that only that salary will be taxed in India which is paid in India. A taxpayer is obliged to pay income tax in India even on that part of salary, which he receives outside India. However, the salary to be taxed in India will be only for the period of employment in India including the period of leave or absence.
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