Latest Expert Exchange Queries
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) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
Popular Search: VAT Audit :: empanelment :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: cpt :: form 3cd :: Central Excise rule to resale the machines to a new company :: ARTICLES ON INPUT TAX CREDIT IN VAT :: TAX RATES - GOODS TAXABLE @ 4% :: ACCOUNTING STANDARDS :: list of goods taxed at 4% :: VAT RATES :: due date for vat payment :: ACCOUNTING STANDARD :: TDS :: articles on VAT and GST in India
« News Headlines »
 No move to tax farm income, clarifies Arun Jaitley
 New board for indirect taxes to become operational from June 1
  9 changes that came into effect from April 1
 First time filing income tax? Here's all you need to know about Form 16 and Form 26AS
 New Opening Financial Controller Chartered Accountant (Manufacturing Plant) A Leading Company
 Income Tax Filing 2017: All you want to know about the single page ITR form SAHAJ
 How to benefit from investments in tax saving mutual funds
 60 per cent of income tax notices on fishy cash deposits returned
 All about income tax return form Sahaj
 Why seeing Form 26AS is a must before filing tax return and how to access it
 No tax on notice period pay cut

Net-of-tax salary for expatriates in India
December, 19th 2007
In a recent decision, the special bench of the Delhi Income-Tax Appellate Tribunal has ruled that tax paid by the employer on behalf of the employee is a perquisite and is not subject to multiple grossing up while computing the taxable income of the employee. This is a welcome ruling as far as those who employ expatriates on net-of-tax salary arrangements.

Section 10(10CC) introduced by the Finance Act 2002 provides that notwithstanding Section 200 of the Companies Act, 1956, tax paid by the employer on behalf of the employee on the perquisites, not provided for by way of monetary payment, shall not be included in the taxable income of the employee. The downside of such relief is that the employer is not eligible to claim corporate tax deduction for such tax paid by it.

It is pertinent to note that this relief is available only in respect of the tax paid by the employer on the perquisites which are not provided for by way of a monetary payment. Now what constitutes a monetary payment vis-a-vis a non monetary perquisite has not been defined in the Income-Tax Act, 1961.

Expatriates coming into India and working in various companies are generally tax equalised i.e., the tax payable in India on their salary and perquisites is borne by the employer. This is to ensure that they remain tax neutral in respect of their Indian assignment. In other words, the expatriate employees are assured net-of-tax salary income. Consequently, their income is grossed up for determining the tax payable in India.

A dispute arose whether the tax paid by the employer is in the nature of perquisites. If yes, then whether it constitutes a monetary payment or is to be considered as a non-monetary perquisite. Depending upon the position, the tax paid by the employer is added once to the taxable income or is subject to multiple grossing.

For example, if the employer agrees to pay INR 100 net-of-tax salary to the employee in India, the tax rate is 34%. Then, if such tax payment by the employer is considered to be a non-monetary perquisite then only INR 34 shall be added to the taxable income of the employee. Whereas if such tax payment by the employer is considered a monetary payment then INR 34 will be subject to multiple grossing up and INR 52 will be added in the taxable income of the employee such that after paying tax of 34% on INR 152, the employee receives INR 100 (approx) net of tax salary.

As is evident from the above, this issue assumes importance as there is substantial difference in the overall cost (remuneration and tax) for the employer and is particularly important in case of employers enjoying tax holiday or those having no taxable income/losses in India.

This issue has been subject matter of litigation between the taxpayers and the income-tax authorities. In two of the earlier decisions, the Delhi Tribunal had held that tax paid by employer is a monetary payment and hence outside the purview of Section 10(10CC). Consequently such tax needs to be subject to multiple grossing up.

Recently, the special bench of Delhi Tribunal has overruled the aforesaid two judgments and has held that tax paid by the employer on behalf of the employee would constitute a perquisite. Further, even though such tax payment may be considered a monetary gain, a monetary benefit or a monetary allowance, it cannot be considered a monetary payment to the employee.

As this payment is being made to a third party (here government), the benefit under Section 10 (10CC) can be claimed and hence the tax paid by the employer should be added only once in the salary of the employee. Thereafter, tax on such perquisite (i.e., tax on tax) should not be added again. In other words, tax paid by employer should be subject to single addition and not multiple grossing up.

The above ruling is welcome and would provide relief to employers employing expatriate employees net-of-tax salary arrangements. The revenue authorities may appeal against this decision to the higher authorities. However, as of now, the decision of the special bench will hold good and can be relied upon while planning expatriate employment arrangements.

Vikas Vasal
(The author is executive director, KPMG)
Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Binarysoft Technologies - Our Portfolio

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