Expatriate employees who are deputed to work in India may receive salaries and allowances partly from their employers abroad and partly from employers in India.
Such employees will be liable to tax on their salary income either in India or in the foreign country depending upon their period of stay for the purpose of employment in India.
For this purpose, reference has to be made to the Tax Treaty signed by India with the country of expatriates residence. The tax treaties generally provide that income from employment is taxed in the State where employment is actually exercised. But, the State where the employment is exercised may not tax the income if the individual is present in the other contracting State for a period exceeding 182 days in the 12-month period.
The aforesaid legal situation does not, however, solve the problem of the employers relating to deduction of tax at source on the amount of salary and/or allowances paid by them.
As per the Indian tax laws, an employer is required to deduct tax at source on the amount of salary paid by him. The tax is computed on the basis of estimated income of the employee under the head salary for the relevant financial year.
Therefore, where an employee receives salary income from more than one employer (may be one employer is in India and the other employer is outside India), the question arises as to how salary income for the financial year shall be calculated. Will the entire salary income i.e. total of income from both the employers be considered while determining the amount and the rate of tax for deduction of tax at source?
The above problem has been recently considered by the Delhi High Court in the case of CIT vs Marubeni India (P) Ltd (2007) 294 ITR 157. The court has observed that the tax that is required to be deducted would be the tax payable at the rates in force during that financial year on the estimated income of the assessee under the head salary for that financial year.
Where an assessee is employed simultaneously under more than one employer, he is required to furnish to the employer responsible for deducting tax at source such details of the income under the head Salaries due or received by him from the other employer. Where the employee furnishes the required particulars, it will be incumbent upon the employer to club the entire income to calculate the amount of tax required to be deducted.
Another issue to be considered is whether an Indian employer is also responsible to deduct tax at source even on salary component paid by the foreign employer. This issue has also been considered by the Delhi High Court in the case of CIT vs Woodward Governor India Pvt Ltd (Delhi) ( 2007) 295 ITR-1.
The honble High Court held, that in terms of section 192 of the Act, The Indian employer was only liable to deduct tax at source on the payment that it was making to its managing director and it cannot be burdened with the liability of deducting tax at source on any other payment, either by way of salary or otherwise which the assessee was receiving from some other source. We feel that it would be an impossible burden on the employer (or anybody else for that matter) to deduct tax at source on an amount which it was not paying, but on some other amount paid by a third person altogether.