Tribunal sets aside ₹12 lakh tax demand, reaffirming tax treatment of overseas earnings for non-resident Indians
In a significant relief for non-resident Indians (NRIs), the Income Tax Appellate Tribunal (ITAT) has ruled that salary earned overseas and credited to a Non-Resident External (NRE) bank account in India cannot be taxed in the country, provided the income is received for services rendered outside India. The tribunal also quashed an income tax demand of nearly ₹12 lakh raised against an NRI taxpayer.
The case involved an individual who had worked outside India and received salary from a foreign employer. Although the salary was credited to the taxpayer’s NRE account maintained with an Indian bank, the Income Tax Department treated the amount as taxable income in India and issued a tax demand.
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The ITAT rejected the department’s interpretation, observing that the place where salary is credited does not determine its taxability
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Instead, the decisive factor is where the services were performed and where the income was first received
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Since the taxpayer had earned the salary for employment outside India and qualified as a non-resident under the Income Tax Act, the tribunal held that the income was not liable to tax in India
Tax experts said the ruling reinforces a long-standing principle of Indian tax law that foreign income earned by NRIs for services rendered abroad remains outside the Indian tax net unless specific provisions apply. They noted that merely transferring or crediting such earnings into an NRE account does not alter the nature of the income or make it taxable.
The decision is expected to provide greater clarity for NRIs who remit overseas earnings to India through NRE accounts. It also highlights the importance of maintaining appropriate documentation to establish residential status, overseas employment and the source of income in the event of a tax inquiry.
