Arnav Pandya

There is often an element of confusion about the manner in which salary income has to be considered for tax purposes by an employee. Often the services for the salary is rendered in some other country across the world and the question that arises is then whether this would be taxable and where it would be taxable. There are several conditions that are present in the Income Tax Act which clarify the exact details of when and how the taxation for the salary will be undertaken especially when received abroad and hence it is important to look at these and then come to a final decision. Here are some variations that will be witnessed and the impact of this on the taxable income of the individual.

Overall basis
There are some incomes that are deemed to arise in India even if they are received abroad so these have a very important role in their classification. It is important that the conditions related to the salary is considered carefully because this will be applicable to all people whether they are a resident or a non resident for the purpose of taxation. There are different ways in which this will be taxed but the overall base is that if some conditions are fulfilled then the salary would be taxable in India.

Service rendered in India
In case there is income received abroad by an individual as salary and the service is rendered in India then the amount would be considered for taxation in India. The key point here is that the service has to be rendered in India. Once this is fulfilled then it does not matter as to whether the company is Indian or not and other related points. The service has to be in India if the income is to be taxed here and this would be the main factor that has to be considered when the amount is received abroad.

Service rendered outside India
Just because the income from service rendered in India is taxable in the country it is not necessary that the reverse would be true in all cases. There is a difference in the manner in which the salary and the various perquisites and allowances are taxed in some cases so these have to be separated when necessary. However a condition where there is service that is rendered outside India and the employer is the government of India and the employee is a citizen of India then the income received outside India would still be considered as having arisen in India and taxed in the country. Several conditions are important here with the first being that this classification is for salary received and not other heads like allowances under the head of salaries. The next condition is that the employer has to be just the government of the country and the person needs to be an Indian citizen if the condition of the citizenship is not met then once again the income would not be considered to have been arisen in India.

Other cases
There are other cases too where the service is rendered outside India and in this case the employer could be any other entity other than the government of India. In such a case the salary income would not be considered to have arisen in India. This is a clear distinction that arises due to the fact that the employer is not the government and the services are rendered outside India. In this case even if the person is an Indian citizen then the overall conditions would be applicable and hence there would not be any income that arises in the country. Once the basic distinction is made then the additional way of taxation of the income arises and this would then have to be followed.