Latest Expert Exchange Queries

GST Demo Service software link: https://ims.go2customer.com
Username: demouser Password: demopass
Get your inventory and invoicing software GST Ready from Binarysoft info@binarysoft.com
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
 
 
 
 
Popular Search: VAT Audit :: form 3cd :: TAX RATES - GOODS TAXABLE @ 4% :: list of goods taxed at 4% :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: articles on VAT and GST in India :: ACCOUNTING STANDARD :: ARTICLES ON INPUT TAX CREDIT IN VAT :: ACCOUNTING STANDARDS :: Central Excise rule to resale the machines to a new company :: due date for vat payment :: TDS :: cpt :: empanelment :: VAT RATES
 
 
News Headlines »
 Use ITR-2 to show salary and capital gains income
  TDS Applicability On Government Contracts Under Gst (Under Section 51 Of The Cgst Act, 2017)
  How to file ITR for FY 2016-17 and all the links you need
 All about E-way Bill under GST
 Good and simple tax: on the GST regime
 Seeks to extend the time limit for filing of GSTR-1, GSTR-2 and GSTR-3
 Good news, find Tax Return Preparers soon at a place near you; 5 things to know
 Filing of GST return
 Why cement companies are going in for M&As
 Govt moves to rework direct tax law after PM’s nudge
 New offer available for filing tax returns online, how to avail

MNCs must cut tax at source and pay it to government
November, 17th 2008

A large number of expatriate employees are deputed to work in India by the foreign companies. Their salary may be paid by the foreign companies, or, by Indian counterparts or by both. Further, the perquisites and other facilities may be paid/ provided partly in the foreign country and partly in India.

It is quite common that multinational companies adopt a uniform policy in respect of their employees world wide. In many cases, expatriate employees are transferred from one country to another.

Therefore, there has to be a continuity and consistency in their remuneration despite variances in local tax laws and social security regulation. Thus, it is not uncommon that expatriate employees are paid net of tax remuneration.

In view of the above, taxation of salary income creates a complex problem, since the entire salary income may not accrue in the foreign country, or, in India.

To overcome this difficulty, tax treaties usually contain a specific provision declaring that such income should normally be taxed in the employees country of residence, but the same may become taxable in India, if the employee stays in India for more than 183 days in a fiscal year.

However, in order to claim exemption from tax in India, following conditions should be satisfied. Total duration of employees stay (in aggregate) in India does not exceed 183 days in a financial year.

The remuneration for services rendered by the employee is paid by, or on behalf of an employer who is not a resident of India. The remuneration is not borne by a permanent establishment or a fixed base, which the employer has in India.

In cases where the expatriate employees are taxable in India, it is difficult to determine the obligation of Indian employer to deduct tax from the salary paid to them. In a recent case of Eli Lilly and Co. I. P. Ltd. (S.L.P. (C) No. 18062 of 2008), the assessee, a joint venture (JVC) formed between a Netherlands company and an Indian company engaged four expatriates in India.

They received salaries from the Indian JVC apart from the Netherlands company. The assessee deducted tax at source only from the salaries payable by it to these four executives and deposited it with the tax department.

The department contended that the JVC was duty-bound to deduct TDS not only in respect of the salaries payable by it to the said executives, but also in respect of salaries receivable by these executives from the collaborating company outside India.

However, the Honourble High Court held that there is no obligation of the Indian company to deduct tax at source in respect of the salary received by the expatriate employees from the foreign company.

Also, failure to deduct tax at source does not amount to infraction of law, therefore, there is no justification for claiming interest from the Indian company.

The Honourable Supreme Court rejecting the special leave petition of the department has held that the Indian company was not liable to deduct tax at source on payments to its expatriate employees by the foreign collaborators.

Obligation to deduct tax at source is also important from another angle. Salary paid to non-resident will not be allowed as deductible expense unless the tax is deducted at source and paid to the government. Liability of tax is a statutory obligation, fulfilment of which is a pre-condition for claiming the deduction.

The foreign companies are therefore advised to deduct tax at source from the remuneration paid by them to expatriate employees and pay the same to the government of India. Indian subsidiaries or JVCs should deduct TDS only on the remuneration paid by them.

The foreign companies have to deduct tax at source on that part of remuneration, which is paid by them whether in India or outside India. The same situatiaon will prevail even in cases of net of tax salary arrangement.

 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Content Management System development CMS development Content Management Solutions CMS Solutions Content Management Services CMS Services CMS Software

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions