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If income tax is not paid in the country of residence, DTAA benefits are not available

LiveMint logoLiveMint 14-08-2017 Archit Gupta

I work for a multi-national company in India. Next month, I am likely to be moved to Dubai on a medium-term assignment that has been assigned to me by my company. Usually, I would be able to take advantage of DTAA to not pay tax in India. Since that country has no income tax, will I still have to pay income tax in India because my salary slip would be generated in India?

—Rajiv Srivastava

You should first find out your residential status in India for the financial year in question. You are considered resident in India, if you meet any one of the following conditions. You are in India for 182 days or more in the financial year. Or, you are in India for 60 days or more during the financial year and you have been in India for 365 days or more during 4 years immediately preceding the financial year.

If you are resident for the said financial year in India, your income earned anywhere in the world is taxable in India. However, if you are non-resident in India, only the income earned or received in India is taxable in India.

Since you say your pay slips are generated in India, I am assuming your salary is paid to you in India. If your salary is paid to you/is credited to you in India then it shall be taxable in India. If any tax is deducted in the country where you live, you can take benefit of DTAA. However, since there is no tax on income in Dubai, the tax on such income will have to be paid in India.

My uncle used to work for the United Nations (UN) in New York. However, he retired 4 years ago and now lives in India. His salary back then was obviously tax free. Now that he lives permanently in India, will his pension also be tax free or will it taxable? If yes, can you please specify under what section of the income-tax Act this would be so?

—Biren Chandra

Pension received from the UN by its employees is exempt from tax. However, this exemption has not been specifically mentioned in the income-tax Act. Under the United Nations Privileges and Immunities Act, 1947, any salary or emoluments received by officials of UN are exempt from tax. These provisions have been brought into force in India and nothing to the contrary has been mentioned in the income-tax Act.

In the case of CIT v. K. Ramaiah [1980] 126 ITR 638 the Karnataka High Court held that since salary has been defined to include pension (as per section 17 of the income-tax Act), if salary is exempt from tax, pension will also be exempt. Therefore, salary or pension received by employees of the UN or any person covered under the UN (Privileges and Immunities), Act, 1947 will also be exempt from income tax.

Your uncle can enjoy tax free pension in India.

My son is about to join the merchant navy soon. As he would be away from the country and would be sailing for extended periods, but on Indian soil technically, will he qualify as a non-resident Indian (NRI) or a resident Indian for tax purposes? Kindly advice how to proceed on this.

—Devendar Sahni

A citizen of India who is a member of a crew of a foreign bound ship and is outside India for a period of 182 days or more in a year, is a non-resident. Therefore, when your son spends less than 182 days in India in a year, for that year he shall be considered a non-resident. While calculating this stay of 182 days, the entire period mentioned in the Continuous Discharge Document shall be excluded. Even though the ship may have been on Indian coastal waters in its journey, the numbers of days of stay in India for such person shall not include the days from the start date of the Continuous Discharge Certificate and ending on the end date of this document, as signed off on this document. Continuous Discharge Certificate must be as per the Merchant Shipping (Continuous Discharge Certificate-cum-Seafarer’s Identity Document) Rules, 2001 made under the Merchant Shipping Act, 1958.

Salary of a non-resident seafarer for services outside India on a foreign ship will not be included in the total taxable income of the seafarer, even though such salary is credited in the NRE account of the seafarer with an Indian bank. (As per CBDT circular no. 13/2017 dated 11.04.2017).

Archit Gupta is founder and chief executive officer of ClearTax

Queries and views at mintmoney@livemint.com

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