Section 10(6)(vi) of the Income-tax Act, 1961 provides for short stay exemption to foreign citizens on visits to India for up to a period of 90 days.
Let’s first understand why this exemption is required:
If a foreign resident who is having a first visit in India and stays in India for less than 182 days then he will not be considered as resident for that Financial year.
However, even for a non-resident as per Section 5 of the Income tax Act, any income which is accrued or deemed to accrue in India would be taxable in India.
Now, as per Section 9(1)(ii) of the Income Tax Act, Salary income earned by a person would be deemed to accrue in India if the service is rendered in India. Relevant extract of Section 9(1)(ii) is as under:
“(ii) income which falls under the head “Salaries”, if it is earned in India.
Explanation.—For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for—
(a) service rendered in India; and
(b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment,
shall be regarded as income earned in India;”
Accordingly, if a non-resident visit’s India for a short stay for job purpose and renders his service from India, then as per Section 5 read with Section 9(1)(ii) of the Act, his income will be taxable in India.
Relevant extract of Section 5 is as under:
“(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which—
(a) is received or is deemed to be received in India in such year by or on behalf of such person ; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year.”
Thus, to save their remuneration from getting taxed in India for this period this exemption has been provided.
However, there are other conditions prescribed under section 10(6)(vi) which needs to be fulfilled to get the above exemptions by foreign citizen. Relevant extract of Section 10(6)(vi) is as under:
“(vi) the remuneration received by him as an employee of a foreign enterprise for services rendered by him during his stay in India, provided the following conditions are fulfilled—
(a) the foreign enterprise is not engaged in any trade or business in India ;
(b) his stay in India does not exceed in the aggregate a period of ninety days in such previous year ; and
(c) such remuneration is not liable to be deducted from the income of the employer chargeable under this Act;”
The conditions mentioned above are foreign company (employer) does not have a business in India, stay of employee in India does not exceed 90 days in a financial year and the remuneration paid to employee is not claimed as an expense in India.
Similar conditions are present in the independent personal service clause of the tax treaties with 90 days being replaced by 180-183 days in most of the treaties.
However, one notable difference is that 10(6)(vi) doesn’t allow this benefit to the Indian citizens. But the treaty doesn’t make any such distinction. Hence, if an Indian citizen who is non-resident Indian comes to India in relation to his job, his salary could be taxable in India as per Income Tax Act.
Herein, the treaty will come to the rescue wherein the employee even being an Indian citizen could be a tax resident of the foreign jurisdiction and would be able to claim the Short stay exemption under the DPS clause of the treaty. However, the employee will have to furnish TRC, Form 10F and other documents in India to claim such benefit.
Guidance on above article for Indian Income Tax by:
Naman Maloo (C.A., B.Com)
He is currently working as Partner – Direct Tax with a renowned firm in Jaipur having experience in dealing Assessments before Income Tax authority, Tax Audit, International Taxation, Tax planning for NRI, Business planning and consultation.
E-mail: naman.maloo@jainshrimal.in | LinkedIn: Naman Maloo
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