Taxability of Salary Income
As per Section 5(2), the total income of any financial year who is a non-resident includes all the incomes from whatever source derived which –
- is received or deemed to be received in India or arise in India during such financial year.
- accrue or arises or is deemed to accrue or arise in India during such financial year.
Explanation 1 – Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India.
Explanation 2 – For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.
Clarification issued by Central Board of Direct Tax (CBDT)
As per Circular No. 13/2017 issued by CBDT on 11th April 2017, salary accrued to a non-resident seafarer for services rendered outside India on a foreign ship shall not be included in the total income merely because the said salary has been credited in NRE account maintained with an Indian bank by the seafarer.
CBDT clarifies further that section 5(2)(a) provides that only such income of non-resident shall be subjected to tax in India that is either received or deemed to be received in India. In other words, the salary credit to NRE bank account is just a remittance to an Indian bank account so section 5(2)(a) shall not be applicable.
This circular specifically clarify if below conditions are met then the salary received shall not be included in the total income of the individual: –
- Non-Resident seafarer
- Service rendered outside India
- Foreign Ship
- Credited to NRE Bank account
However, it does not mean if you have received a salary from an Indian flagship or the amount is credited to NRO bank account then it is taxable as above circular is silent in this case but it is highly suggestable to get the salary credited only in your NRE bank account to safeguard yourself from any later appeals or proceedings.
The above circular is just a clarification issue by CBDT on the application made by Indian’s leading merchant navy unions (MUI and NUSI) against the decision passed in Tapas Bandopadhyay case in August 2016 by Kolkata Income Tax Tribunal mandating Indian merchant navy workforce to pay tax in India.
FAQ on taxability of salary income in India
- I have completed my non-resident status but salary in crediting in my NRO bank account. Is it going to be taxable in India?
No, the salary will not be taxable in India. However, it is highly suggestable to remit the salary into your NRE bank account only to avoid any litigation.
- I have completed my non-resident status. I am working for an Indian company which is deducting my TDS. Is my income is taxable in India?
No, the salary will not be taxable in India. You have to file your income tax return to claim back the TDS amount deducted by your company as refund.
- I have taken $3,000 as cash in India at the time of sign off from the ship. I have completed my non-resident status. Is this $3,000 is taxable?
No, as $3,000 is a part of your salary. You should convert it in Indian Rupees and deposit them into your NRE bank account.
Taxability of Other Income
Any other income which accrues or arise in India is taxable here in India under section 5(2)(b). So other income earned by assessee like bank interest, capital gain on sales of investment or property, dividends, commission etc. are taxable and required to be reported at the time of filing your return of income.
Note – Only the interest earned on the NRE saving bank or term deposit are exempt from tax under section 10(4)(ii).
- I have completed my non-resident status and receiving rent of Rs 5,00,000 per year for renting my house situated in Delhi. Is Rs 5,00,000 exempted from tax?
The income from property situated in India is taxable for all person (resident or non-resident). So, you are required to file your return and pay taxes (if applicable) on the income earned from renting of property situated in India.
- My bank has deducted TDS on the interest earned on NRO bank account whereas I have completed my non-resident status? What should I do?
Interest earned on NRO bank account is considered as Indian income and liable to tax in India. You can file your income tax return and claim the refund of the TDS deducted on NRO bank account interest. However, the interest earned on NRE bank account is exempt under section 10(4)(ii) so no TDS shall be deducted by the bank.
- I have earned Rs 1,00,000 on sales of mutual funds and shares in the last financial year. Is it taxable as the tax-free income is Rs 2,50,000?
Yes, capital gain is taxable at a flat rate. No exemption of tax-free limit is available to non-resident.
- Is PPF interest earned by me is tax free?
A non-resident cannot open a PPF account. However, if you have open a PPF account before becoming a non-resident then you can continue such account till the lock in period of 15 years from the date of opening. Interest earned is exempt from tax under section 10(11) of the Income Tax Act. Also, the amount deposit into PPF shall qualify for the deduction under section 80C of the Income Tax Act.