In Recent Decision, India Will No Longer Tax Nonresidents

In a recent decision in the case of Texas Instruments (India) Pvt Ltd, AAR No. 1299, the Indian Authority for Advanced Rulings (AAR) held that salary paid in India to an Indian who was working in the United States and not a current resident of India was not taxable in India or subject to withholding there. The Indian Revenue Department had argued that even though the employee was not currently residing in India, he would still be liable for taxes there; even though he was on the payroll of the U.S. entity, part of the salary was actually paid in India, and that portion was subject to Indian tax and withholding.  

The AAR reviewed the various applicable sections of the Indian tax statutes and concluded that no part of a nonresident’s salary for employment outside India is taxable in India regardless of where it is paid. Even though the withholding statute could be read to include the salary paid in India, the statute governing taxation of salaries compels a different result. Under that statute, the AAR held that it is not the citizenship of the recipient, or where the salary is received, that is relevant. Rather, it is the jurisdiction in which the services are rendered. If the recipient is not a resident of India, and receives salary for working outside India, the salary is not taxable in India. The AAR also allowed the employee a tax credit against other Indian tax for taxes paid to the U.S. 

The case clears up uncertainty that had surrounded the Indian Department of Revenue’s interpretation of the Indian tax law, and will be of assistance to Worldwide ERC® members who bring Indian workers to the U.S. for temporary employment.

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