In Indian Income tax provisions, the rule of exemption & taxability of salary totally lies if the relationship of employer-employee exists between the Payer & the Payee. Moreover, the place of accrual of salary has also its importance as per Income Tax Act, 1961.
The simple rule is that Salary accrues at the place where the services are rendered. Therefore, even if a foreign citizen is paid salary outside India though services are rendered in India, it is deemed to accrue or arise in India.
Therefore, salary of a foreign citizen is generally not exempt in India. However, specific exemptions are provided to them which are elaborated below:
Salary of diplomatic personnel
Remuneration received by a foreign citizen as a result of high commission, legation, commission consulate, trade representation of a foreign state or as a member of the staffÂ of any of these officials will be exempt from tax provided corresponding Indian official enjoys a similar exemption in that foreign country.
Moreover, that staff members of the country represented are not engaged in any business or profession or employment in India except as the staff members.
Salary received by a shipâ€™s crew
Salary so received by foreign citizen who is a member of a crew of a foreign ship is totally exempt from tax, if in aggregate his total stay in India does not exceed a period of 90 days during the PY.
Salary to foreign employees
Remuneration receivedÂ foreign employees for services rendered by him to a foreign enterprise during his stay in India is exempt from tax, if following 3 conditions get satisfied.
- His stay in India does not exceed 90 days in such PY.
- The foreign enterprise is not engaged in any business or trade in India.
- His remuneration is not liable to be deducted from his income as per IT Act.
Remuneration of foreign national as a trainee
The remuneration received by a foreign national as a trainee by a foreign Government during his stay in India is exempt from tax, if an office is owned by the following:
- Any company partly or fully owned by the CG or one or more state govt.(SG)
- Any Statutory Corporation,
- Any company which is subsidiary of a company owned by CG or SG.
- Any society registered under the Societies Registration Act or any other Act, wholly or partly financed by the CG or one or more SG.
Remuneration or fees received by non-resident consultants
The following 2 scenario will provide us exemption of the remuneration or fees, when received by foreign consultants:
a)Â Â Â Â Â An agreement between an international organisation & the Government of foreign state illustrating the exemption from tax, when any remuneration is received by foreign consultant directly or indirectly out of the funds of an organisation.
b)Â Â Â Â Â Any other income which accrues or arises outside India & not in India & for which foreign consultant is required to pay tax on any social security to the Government of his or her origin, is totally tax-free.
Remuneration or fees received by foreign employees of non-resident consultants
Any remuneration received by an employee of the consultant is exempt from tax, if such employee is
- Not a citizen of India.
- Not ordinarily resident though being a citizen of India.
- Not ordinarily resident in India & the contract of his service is approved by the Additional Secretary, Department of Economic Affairs in the Ministry of Finance, Govt. of India, before the commencement of his service.
Tax Experts at Taxmantra have the core expertise in handling issues relating to taxation and would assist you to solve all your taxation issues.