Is salary paid abroad taxable in India and what are its exceptions

To understand whether salary paid abroad is taxable in India or abroad, we have to understand the place of accrual of salary. As per our tax laws, the place of accrual of salary is the place of employment.

Section 9(1)(ii) states that salary earned for services rendered in India is deemed to accrue or arise in India even if it’s paid outside India. Similarly pension paid abroad for services rendered during the employment in India is deemed to accrue or arise in India. Deemed to accrue or arise in India means its taxable in India.

Exceptions – when salary paid abroad is not taxable in India

However, in certain cases salary paid abroad will not be taxable in India.

For instance, pension payable by the government to its officials and judges who permanently resides outside India shall not be considered as deemed to accrue or arise in India.

Another exception employee of UNO or its constituent bodies. In this case, salary receiver is exempted under United Nations (privilege and immunity) Act.

Salary to NRI by Government of India

Salary payable by the government to a citizen of India shall be considered as deemed to accrue or arise in India even if its payable for the services rendered outside India. For instance, a non-resident Indian citizen who is posted in the USA as Indian ambassador is chargeable in India even though the services are rendered and paid outside India. If the non-resident is not an Indian citizen, then he shall not be chargeable to tax in India as its not deemed to accrue or arise in India.

However, under section 10(7) of the income tax act 1961, any allowances or perquisites paid or allowed outside India by the government to a citizen of India for rendering services outside India is fully exempted and consequently the whole amount of allowances and perquisites will not be chargeable to tax.