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Saturday, January 13, 2007
Salary Earned In USA not Taxable in India!
I live full-time in New York, NY (USA) and am a US citizen. I do not hold Indian citizenship. If I am employed by an Indian company headquartered in India providing a service to them outside India, must I pay Indian income taxes, apart from the US income taxes that I firstname.lastname@example.orgPrima facie , your salary is not taxable in India .The fundamental reason is that not only you are an Non Resident but also giving service outside india and that you are also receiving your salary outside India.
Now , the taxability aspect of non resident under the I T Act . Income of non resident is taxable following circumstances
Received in India or
Deemed to be received in India or
Accrue in India or
Arise in India or
Deemed to Accrue or Arise in India.
From the little facts you have given, I presume you are employed in a branch office of an Indian Company . As such , conditions 1 ,2,& 4 are not satisfied. Condition No 5 is also not satisfied becasue by virtue of section 9 (ii) of the I T Act Salary not earned in India shall not come within definition of income "deemed to accrue or arise in India".For your benefit,Section 9(ii) of the I T Act is given below
"ii) income which falls under the head Salaries, if it is earned in India.Explanation.For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for(a) service rendered in India; and(b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment,shall be regarded as income earned in India ;"
Therefore only the fourth condition i.e Accrual of Income is left.Whether an income accrued in India depends totally on facts and circumstances of the case. As per the fact described by you, your income, in my opinion , should not have "accrued " in India.The basic premise is that income accrues at a place where your right to receive it is enforceable. In my view , in your case, right to receive the income is arisen at the place of giving service and invokable under the law of USA . Accordingly, the salary is accrued in India.
Anyway, there is Double taxation Avoidance Agreement between India and USA . Article 25 of the DTAA provides for relief from Double taxation .
"Article 25 - Relief from double taxation - 1. In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle hereof), the United States shall allow to a resident or citizen of the United States as a credit against the United States tax on income(a) the income-tax paid to India by or on behalf of such citizen or resident ; and
For the purposes of this paragraph, the taxes referred to in paragraphs 1(b) and 2 of Article 2 (Taxes Covered) shall be considered as income taxes................3. For the purposes of allowing relief from double taxation pursuant to this article, income shall be deemed to arise as follows :(a) income derived by a resident of a Contracting State which may be taxed in the other Contracting State in accordance with this Convention [other than solely by reason of citizenship in accordance with paragraph 3 of article 1 (General Scope)] shall be deemed to arise in that other State ;(b) income derived by a resident of a Contracting State which may not be taxed in the other Contracting State in accordance with the Convention shall be deemed to arise in the first-mentioned State. "