Taxation of Salary Received by NRIs from Indian Companies Abroad: Navigating the Complexities
When working on a project abroad, Non-Resident Indians (NRIs) may wonder about the taxability of their salary received from an Indian company in their foreign accounts. This article aims to clarify the nuances of such taxation and explore the best practices for tax planning.
Understanding the Taxability of Income from an Indian Company
According to the Income Tax Act of India, section 5, all salary income is considered taxable in India, irrespective of where the services are rendered or where the credit is received. This rule applies to NRIs as well.
Key Points to Consider
Salary received from an Indian company is considered to “accrue” in India, making it subject to taxation under section 5 of the Income Tax Act. The deeming provision (section 9) cannot be used to claim that salary is not taxable simply because the services are rendered abroad. The only way to avoid taxation is to receive salary from a company in a non-Indian jurisdiction.Best Practices for NRIs and Employers
To navigate the complexities of NRI taxation, both NRIs and Indian employers should consider the following best practices:
1. Opt for Foreign-Based Remuneration
Wherever possible, it is advisable to arrange for the NRI to receive salary from a company based in a foreign jurisdiction. This would avoid the need for taxation in India, provided the NRI can establish that they are indeed considered a tax resident of the foreign jurisdiction.
2. Engage Professional Tax Advisors
It is crucial for NRIs to seek professional tax advice to ensure compliance with both Indian and local tax laws. Consultancy with a licensed professional can provide customized guidance on tax planning and compliance.
3. Review Specific Facts and Scenarios
Each NRI’s situation is unique, and it is recommended to evaluate specific facts and scenarios. This might include details such as the NRI’s tax residency status, the nature of the services rendered, and the applicable tax treaties between India and the other jurisdictions.
Key Considerations for Employers
Indian companies that employ NRIs for projects abroad should be acutely aware of their responsibility to ensure compliance with Indian tax laws. They can:
Ensure that NRIs receive salary from non-Indian entities. Provide guidance and support to NRIs in seeking professional tax advice. Keep detailed records of the services rendered and the remuneration paid.Conclusion and Disclaimer
While this article provides a framework for understanding the tax implications of salary received by NRIs from Indian companies, it is important to note that seeking professional tax advice is paramount. Each situation is unique and may require bespoke attention. The Chartered Accountant mentioned in this discussion is associated with the Institute of Chartered Accountants of India, but professional advice should always be sought from a licensed practitioner in the relevant jurisdiction.
It is strongly advised that individuals consult with a licensed professional before making any decisions that may affect their tax rights and obligations.
Disclaimer: This information is not a substitute for professional tax, investment, or legal advice. This answer does not constitute a professional-client relationship and is not a solicitation for tax, investment, or legal advice. Seek the advice of a licensed professional in the appropriate jurisdiction before taking any decision that may affect your rights. CA Abhinav Gulechha is an Associate Member of the Institute of Chartered Accountants of India [Mem. No. 117723] and is also registered as an INA000001167.