New Delhi:
When employees are sent abroad for work, alongside their salary, they often receive living allowances. However, there’s ambiguity regarding whether these allowances are taxable in India. Recent rulings shed light on this matter.
Residency and Taxation:
Residency status is paramount in income tax matters.
Resident Indians (ROR) are liable to pay tax in India on foreign income, with provisions for tax credits if tax is paid abroad.
Distinct Rules for RNOR and NRI:
Non-Ordinarily Resident (RNOR) or Non-Resident Indians (NRI) are exempt from Indian taxation on foreign income.
Even if income is credited to an Indian or foreign bank account, no tax is applicable in India.
Taxation of Salary
Income is taxed where services are rendered.
Hence, NRIs are taxed on salaries earned abroad.
Crucial Allowance Structuring:
Salary of NRI/RNOR is taxable in India if it’s for services rendered in India.
Fixed allowances from Indian companies are taxable.
Allowance Structuring:
Reimbursements based on actual expenses incurred for official work aren’t taxable,
contrasting with fixed allowances.
