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Foreign Taxation

Amit (Completed Articleship in March 10) (26 Points)

11 July 2010

Hi all.

I would request u to come out with expert advice on the following issue.

1.) My brother was transferred to Australia From their current Org. IBM india for around 7 months during F/Y 2009-2010. Since we do have DTAA with Australia It falls under the ambit Of section 91 of DTAA. Withholding (T.D.S) as per Australian tax rules has been deducted from my brother's salary. He was getting his salary credited in their Australian salary Account.

Now My que to u is despite T.D.S being deducted there he is not yet in receipt of T.D.S certificate from IBM Australia. How this income should be treated in India?

2.) In India he is getting reimbursement for Broadband and Mobile phone To be used exclusively for official purpose. is it liable to tax under the head perquisite U/s 17.

I would appreciate ur effort in this regard.

Thanx

Amit Kumar

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7 Replies

Amir (Learner) (4016 Points)
Replied 12 July 2010

Dear Amit

I think the above will be taxable in India since the status of the assesee in this case will be Resident & Ordinarily Resident in India.

As far as treatment of tax deducted is concerned -

4. In the case of India, double taxation shall be avoided as follows :

(a) the amount of Australian tax paid under the laws of Australia and in accordance with the provisions of this Agreement, whether directly or by deduction, by a resident of India in respect of income from sources within Australia which has been subjected to tax both in India and Australia shall be allowed as a credit against the Indian tax payable in respect of such income but in an amount not exceeding that proportion of Indian tax which such income bears to the entire income chargeable to Indian tax;

Reimbursements for official purposes are not taxable as perquisite

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Juzer Sadikot (CA - innovative solutions for Imports and Exports) (1309 Points)
Replied 14 July 2010

Dear Amit,

I understand that Residential status of your brother as per I T Act shall be as of Non Resident for India and may be Resident for Australia.

As he is non resident for Indian Tax purpose, he is not require to disclose/pay taxes on his global income. Income accrued/arise/received including deemed shall be only Income which are taxable in India and So hurray. Further it is possible to avoid full amount of tax on salary if your bro can satisfy all the three condition of Article 15(2) of Indo-Aus DTAA.

In case residential status of your bro is opposite, you may avoid TDS/Tax at Australia if your bro satisfy following conditions:

Article XV

2. Notwithstanding the provisions of paragraph (1), remuneration derived by an individual who is a resident of India / Australia in respect of an employment exercised in the Australia / India shall be taxable only in the India / Australia if :

(a) the recipient is present in that Australia / India for a period or periods not exceeding in the aggregate 183 days in a year of income of Australia / India;

(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of Australia / India; and

(c) the remuneration is not deductible in determining taxable profits of a permanent establishment or a fixed base which the employer has in Australia / India.

Do revert for further clarification.

Regards

Juzer

CA Shiv (Business Controller) (2987 Points)
Replied 14 July 2010

He wll be considered as Resident and will be taxed in India...

You need to have tax certificate of the withholding tax....

For the perqs and all you dont need to bother as it will be a part in Form 16 issued by the company in India.. so if its there than do show it or else forget it... DOnt bother much...

Since you not having TDScertificate from Australia, i hope you having salary slip with you.. Thts enough to calculate the credit as explained by Amir above...

Amir (Learner) (4016 Points)
Replied 14 July 2010

Hi Juzer,

In the present case Amit's brother stayed in Australia for 7 months i:e for 210 days approximately and thus the clause (a) of Article XV(2) does not gets fulfilled.

Secondly, pls enlighten me on the Residential Status??? As according to me he should be regarded as Resident & Ordinarily Resident.................:(

Juzer Sadikot (CA - innovative solutions for Imports and Exports) (1309 Points)
Replied 14 July 2010

Hey Amir,

As rightly said by you, Amit's bro stay at Australia shall be 210 days and so stay in India shall not be more than 125 days (365-210) in the concerned FY. Also I understand he has left India for the purpose of his employment. [explaination 1 to caluse c of section 6(1)]

Also, I would suggest you to read DTAA provision by considering him as resident of Australia and if he satisfy all the three conditions, he may not be liable to Tax in India for Salary earned in India when he was working with IBM (India).

What I understand is Amit's bro will not able to satisfy "c" condition.

Plz correct me if I have goofed up something ;-)

Regards

Juzer

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Amir (Learner) (4016 Points)
Replied 14 July 2010

Hi Juzer,

Actually, I just wanted the clarification on were u relying on the explanation?

Thanks for the replying......:)

Bro, I could be wrong but I think in the present case it cannot be said that the person had left India for the "purposes of employment outside India"

I think this condition cannot be fulfilled in the absence of a PERMANENT DECISION to work outside India.

>>> Now that does not mean that one should never return to India once he get himself covered under this explanation.

>>> It simply means that the decision to leave India should be with an intension to stay outside India for an uncertain period.

>>> Further, mere a fact that you are not sure about the exact date of ur return to India does not fulfill this condition. eg - the condition remains unsatisfied if at the time of leaving India a person knows that he will be back but is not sure about the exact period of stay as it might take 6 or 7 or 8 months.

>>> I am sure you could draw a difference between Temporary Transfer/Shifting and PURPOSES OF EMPLOYMENT.

The above interpretation is inspired by the countless judgments on this issue under Sec 2(v) of FEMA, which defines "Person Resident in India" and have more or less same language and intentions.

What do you think?? Pls reply.....

Juzer Sadikot (CA - innovative solutions for Imports and Exports) (1309 Points)
Replied 14 July 2010

Amir

Thank for making it interesting.

I am not Tax Expert but what I understand is if we are talking about residential status as per IT its purely base on number of day stayed in India [there are no doors for intention] but "Person resident in India as per FEMA" is different ball game where we have to look at the spirit of Law "FEMA". Further, I acknowledge that whatever you are saying is true for explaination "b" of section 6(1)

Also, frankly speaking I dont have any material(to find any judgement) with me at the moment to justify what I have said.

Nevertheless, I belive as per Indo Aus treaty, he will be surely resident of Australia and non resident of India and so doesn't make any difference.

Plz ignore the spelling/grametic mistake and also correct me if I hav made ny technical mistake.

Regards

Juzer

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