INDIA BUSINESS WORLD - AUGUST 2006
THE MONTH THAT WAS...

NO TAX ON SALARIES EARNED HERE IF YOU'RE OVERSEAS FOR 6 MONTHS

IN A path-breaking order, the Authority for Advance Ruling (AAR) decided that salary received in India by a person who resided 182 days or more outside India is not taxable, since he will be considered a nonresident during the relevant year.

This will come as a great relief to executives who stay outside India for 182 days or more in a year.

AAR , a quasi-judicial body on tax matters, gave this verdict on a petition filed by British Gas. AAR was clarifying doubts over the issue whether a person can be considered non-resident Indian if he travels outside India for more than 182 days in a year while his travel is linked to his employment in India .

A person who travels outside India to take up a job is a non-resident and hence not taxable in India . However, the issue before AAR was whether a person travelling overseas for more than 182 days in connection with his employment in India was entitled to pay tax or not. The income-tax department sought to levy tax on the income of such executives by denying them the status of a non-resident. The department's argument was that the person is employed in India , and hence not a non-resident. In the case of British Gas employee Manish Gupta, who was deputed to the UK for two years from May 25, '05 , the I-T took a stand that tax was leviable in India because he stayed in India for 88 days. The department was relying on a provision in the I-T Act by which a person is a resident if he stays in India for 60 days, and had been in India all the days in the previous four years.

The ruling will have a bearing on the growing number of executives being sent on assignments by companies.

“It is unfortunate that the I-T department tries to litigate where there is no litigation required and interpret the law the way it wanted. This is only because there is no accountability.”