Expat CXOs of multinational companies in India have something to cheer. If an Income Tax Appellate Tribunal (ITAT) decision is anything to go by, the chief executives of these companies who are in charge of operations in other countries, could see their tax liability coming down in India.
According to the ITAT judgement, they will be now able to split their income depending on their contribution in each country office. For example, if a CEO spend half of his time in Singapore and half his time in India, handling operations in both countries, he will now be able to pay tax only on 50% of his income in India.
The decision helps clear the air on an issue that is gaining relevance now as many senior individuals are getting assigned to India with multi-country responsibilities. However, the ruling is very fact based and hence should be applied prudently by the tax payers, said Amitabh Singh, partner, Ernst & Young.
ITATs Delhi bench recently held that when an individual who is a resident but not ordinarily resident in India renders services both in India and outside, where the split of services is defined under a contract of employment, then salary for services rendered outside India is not taxable in India.
If a contract of employment recognises the division of services to be performed in India and those to be performed outside India, there can be no inference that the employees while they were outside India, rendered services in respect of their operations in India.
The Tribunal also held that employer who in this case was Air France, contributions to French social security schemes which were mandatory in nature could not be taxed as benefits in the hands of the employee.