The current ruling of the Delhi bench of the Income Tax Appellate Tribunal (ITAT) might act as a breather for the expatriates during this time of recession. The ruling states that tax liability of the expatriate employees responsible for operations of a company in India as well as other countries in the region could go down substantially, as they will no longer be required to pay tax on salary earned outside India for work unrelated to Indian operations.
However, the expatiate will have to substantiate the same with documentary evidences. If an expatriate is able to prove that he has not performed any activity relating to Indian operations while working outside India, his salary for those days would not be taxable in India.
This ruling relates to a case pertaining to Ellis D’ Rozario, an expat employee of Dubai-based Master Foods Middle East FZE. The company had posted Mr Rozario, an Australian national, as regional manager for the Indian sub-continent at its New Delhi liaison office. His duties involved traveling outside the country to look after the regional operations. Mr Razario was a ‘resident but not ordinarily resident’ for the relevant tax year 2000-01.
According to the Income Tax Act, an individual is a resident in a previous year (the year for which tax liability is being calculated) if he has been in India during that year for 182 days or more. He is also treated as a resident if he is in India for 60 days or more in a year provided that he has also been in India for 365 days or more in the preceding four years.
The income-tax department contended that the salary received during Mr Rozario’s visits outside India was liable to tax, as he also took updates from India as well. This was disputed by Mr Razario. He contested by saying that the services performed outside India were unrelated to the Indian operations. However, he was not able to produce any documentary evidence in respect of work and so the matter was sent to tax authorities who passed the current ruling.
This is not an isolated case. There are numerous such cases in India. The reason is that there are many such multinational companies which do not have any direct operations in India. They just have their regional offices which are supervised by some expatriate. On one hand, this ruling comes as a boon for the expatriates as it would increase their disposable income in this period of recession, while on the other hand, it is a loss for our government, as its tax revenue will go down by a substantial amount.
This is very good step taken by income-tax department. There are number of companies who are only supervised there operation which is located in another countries. So, Govt. will take a income tax from these companies. Which help to recover the India recession effects.
Comment by Jaspal Singh — March 20, 2009 @ 1:04 pm