If a person goes abroad for office work, the company gives him living allowance. This is given so that the additional expenses incurred during his stay abroad are compensated. The question is whether this allowance will be taxed in India? The Delhi branch of the Income Tax Appellate Tribunal has recently given an important decision in this regard.
Many times companies send employees abroad for work. Apart from the salary, they give some living allowances to the employees in India. The question is whether this living allowance will be considered a part of your salary in India and will be taxed? The Delhi branch of the Income Tax Appellate Tribunal has recently given an order, which is very important. It states that an NRI working in Austria and who receives salary/living allowance from his employer in India will not have to pay tax on this income in India. Now the question is that if an Indian resident goes abroad for office work and gets living allowance, will the same rule apply to him also?
Residency is very important in tax matters
Chetan Chandak, director of tax consultancy firm TaxBirbal, says that when it comes to income tax, the question of residency comes first. After that it matters whether the income is earned in India or abroad. After that the tax matter is decided. If you are a Resident Indian (ROR), you will have to pay tax in India on your foreign income. If you have paid tax in any country on your income earned abroad, then you can claim tax credit on it in India.
Separate rules for RNOR or NRI
According to Chandak, if you are RNOR (Resident but Non Ordinarily Resident) or NRI, then the income earned abroad will not be taxable in India. Therefore, there will be no tax on it in India even if its payment is made in Indian bank account or foreign bank account. He said that salary (including allowances) is deemed to be paid at the place where the work is performed or services are rendered. Therefore, if an NRI receives salary abroad, it will be taxed in that country.
The structure of the allowance is also very important
Neeraj Aggarwal, partner at Nangia Anderson India, said that in case of salary of NRI or RNOR, it will be taxable in India only if their income is for their services or work in India. As far as allowance is concerned, the allowance received by an employee in the form of fixed income from the company in India will be considered a part of his salary and will be taxable. Aggarwal said that but if the company has wisely structured the allowance in which instead of fixed income, a fixed amount is reimbursed on the basis of expenses incurred on official work, then this amount will not be included in taxable income.
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