Indian tax authorities clarify double taxation situation for overseas workers Indian tax authorities clarify double taxation situation for overseas workers

Indian tax authorities clarify double taxation situation for overseas workers
02 Mar 2018

It is not necessary for employers to withhold tax from salaries paid in India to non-residents working overseas, the Authority for Advance Ruling (AAR) has concluded.

The AAR also confirmed employers that continue to withhold taxes may provide employees with a credit for taxes paid overseas.

According to the Financial Express, the ruling provides much-awaited clarity over the situation of staff who have been sent to work overseas but have their payroll processed in India.

Such employees are initially generally subject to double taxation as taxes are withheld from their salary when it is paid in India and also by the overseas jurisdiction as well. It has been possible to claim relief under the Double Taxation Avoidance Agreements Treaty via tax returns, but the situation has caused significant cash flow issues and administrative challenges in tracking tax refunds.

Now though, the AAR has ruled that as long as non-resident employees render services overseas, income does not accrue in India and is, therefore, not taxable in the country. This means that Indian employers do not need to withhold tax. Relief is available not only for cases covered under tax treaties but also in situations where no treaty exists, or where employees do not meet specific treaty conditions.

Impact on residents

The AAR has held that if any benefit or allowance is paid overseas, employers may consider the credit for foreign taxes to be paid at the time of tax withholding, which would minimise the impact of double taxation.

Impact on employers

Many companies 'tax equalise' their employees, which means that any additional tax cost or benefit for the overseas worker is picked up by the employer. But employers can now introduce processes requiring staff to continue paying stay-at-home taxes, which will save on cash flow costs and minimise the administrative burden. Employees who are not tax equalised receive higher take-home pay.

Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

It is not necessary for employers to withhold tax from salaries paid in India to non-residents working overseas, the Authority for Advance Ruling (AAR) has concluded.

The AAR also confirmed employers that continue to withhold taxes may provide employees with a credit for taxes paid overseas.

According to the Financial Express, the ruling provides much-awaited clarity over the situation of staff who have been sent to work overseas but have their payroll processed in India.

Such employees are initially generally subject to double taxation as taxes are withheld from their salary when it is paid in India and also by the overseas jurisdiction as well. It has been possible to claim relief under the Double Taxation Avoidance Agreements Treaty via tax returns, but the situation has caused significant cash flow issues and administrative challenges in tracking tax refunds.

Now though, the AAR has ruled that as long as non-resident employees render services overseas, income does not accrue in India and is, therefore, not taxable in the country. This means that Indian employers do not need to withhold tax. Relief is available not only for cases covered under tax treaties but also in situations where no treaty exists, or where employees do not meet specific treaty conditions.

Impact on residents

The AAR has held that if any benefit or allowance is paid overseas, employers may consider the credit for foreign taxes to be paid at the time of tax withholding, which would minimise the impact of double taxation.

Impact on employers

Many companies 'tax equalise' their employees, which means that any additional tax cost or benefit for the overseas worker is picked up by the employer. But employers can now introduce processes requiring staff to continue paying stay-at-home taxes, which will save on cash flow costs and minimise the administrative burden. Employees who are not tax equalised receive higher take-home pay.

Emma Woollacott

Emma Woollacott is a freelance business journalist. Her work has appeared in a wide range of publications, including the Guardian, the Times, Forbes and the BBC.

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