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Applicability of TDS provisions in case of expat

Posted @ August 7, 2012, 5:21 am under (Expat taxation)

Income earned by expatriate employees abroad is taxable in India....!


In a landmark ruling of the Supreme Court confirming that Domestic companies must deduct tax at source on salaries paid to their expatriate staff and if tax can be levied on these employees on wages given abroad by foreign joint venture partners of the Indian firms.  Further, in case the expatriates are seconded to work for the India subsidiary/ joint venture, then Indian subsidiary/ joint venture should deduct tax on entire salary i.e. salary paid in India and overseas.


Supreme Court in case of Commissioner of Income-tax, New Delhi vs. M/s Eli Lilly & Company (India) Pvt. Ltd [Civil Appeal No. 5114 / 2007 – Supreme Court] confirms liability to deduct tax on offshore salary paid to non-resident employees for services rendered in India.

The I-T department has contended that the job offer to the employees through the JV Board indicated that only a part of their gross salary was paid by the assessee in India and the major part was paid by the foreign partner outside India despite employees not performing any work outside the country.

It was also found that the JV was deducting TDS only from the part of the salary paid in India, it said. The income tax department while partly allowing the appeal of the company had held that the income earned by expatriate employees abroad was taxable in India.

However, it had ruled that no tax can be demanded from Eli Lilly & Company as the expatriate employers had paid advance tax on the total income, including the salary received abroad, earned by them.

The Supreme Court further decides:


• Where the home salary paid to the expatriates has any connection or nexus with his rendition of service in India, then such payment would constitute income which is deemed to accrue or arise to the expatriate in India in terms of section 9(1)(ii) of the Act. Section 9 is not only a machinery section but also provides chargeability of tax on incomes which are deemed to accrue or arise in India.


• If the services of employment are rendered in India, the place of receipt or actual accrual of salary is immaterial. Section 192(1) of the Act has to be read with section 9(1)(ii) of the Act.


• Where the home salary is paid and it is found that no services have been performed outside India, such payment shall be “deemed to accrue or arise in India” and the Indian subsidiary/JV is statutorily obliged to deduct tax under section 192(1) of the Act.






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