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Landmark Income Tax (ITAT) judgment to impact NRI’s/Seafarers

Landmark Income Tax (ITAT) judgment to impact NRI’s/Seafarers

30% Tax for Income of NRI’s and Seafarers!

Wouldn’t you be shocked if you were to learn that as an NRI you are chargeable to 30% Income Tax in India?

Had the Income Tax Officers had their way, this is what would have happened. However the ITAT, which adjudicates tax matters, has in a recent judgment, saved thousands of NRI’s and Seafarers from paying taxes on their Overseas Salary Income being sent to India in their NRE Accounts.

In practice, most NRI’s and Seafarers have been getting their Salary, earned overseas, being remitted to their NRE account in India as most are aware that NRE  account is tax free and the Income earned overseas is also tax free for an NRI.

However, numerous NRI’s and Seafarers have received shocking NOTICES from the Income Tax Department, for Laks of Rupees, imposing Income Tax on this remittance.

For eg: If you are an NRI, and you have sent your Salary earned overseas amounting to say Rs 80,00,000, to your NRE account in India, you would have received a Income Tax Notice for a tax payment of Rs 22,00,000 (at least, leaving out the penalties).

The IT Officer sending this Notice, relied on the clause in the Income Tax Act, which says “income received in India is taxable” for both a NRI and a Resident.

Numerous cases on the same matter are being fought by Individuals against the IT Department Notice that they may have received, in the High Court and even the Supreme Court.

However, the recent judgment by the ITAT, which adjudicates tax matters, is a big relief to tax payers and tax advisors alike.

The ITAT, has differentiated between “Income received” and “Amount received”. Quoting the ITAT “the connotation of an income having being received and an amount having being received are qualitatively different. The salary ‘Amount’ is received in India, but the salary ‘Income’ is received outside India”.

As per the order there is a distinguishing fact between “Income received in India” and “Amount received in India”. Hence if a NRI or a Seafarer is working overseas and maintains his NRI status for that particular year, then the Income earned overseas, even if received in the NRE account is Tax FREE. Hence, the Overseas Income of an NRI cannot be taxed in India if the services have been rendered outside India. The place of receipt of the payment is immaterial. However if the Income has been earned in India by the NRI then it will be liable to tax.

This is a very significant judgment by the ITAT, as had the judgment been reverse, then all NRI’s and Seafarers would have had to pay Income Tax in India and you would have received Notices for the past many years of due taxes.

I.T.A. No. : 319 and 320/Agr/2013 Order