Taxability of Salary of RNOR for services rendered FROM Indi

Sunil,

 NOW  able to attach 2nd file. 

This kpmg document does summarise that the employer is liable to deduct TDS on salary paid to expatriate working in India. They have not applied condition of whether the foreigner has presence in India or not.

In section 9, an employee in India is deemed to be a PE. This means the employee is responsible for the employers compliance of Income Tax Act in India.

Section 192 imposes responsibility on anyone responsible for paying salary to a resident to deduct TDS.

As the employer has a PE in India (his employee), if there is no income deemed to be taxable in India, true the employee is not liable for the tax of the employer. But he is by obligation liable to comply with section 192 of the tax.

Therefore the resident employee will have to deduct tax on the salary on behalf of employer whether there is income deemed to accrue in India or not. The employer is responsible for paying salary to resident. The employer's deemed PE being the employee has to deduct TDS on behalf of his employer and deposit and not Advance Tax / Self Assessment Tax. He is the representative assessee for the foreigner and all provisions have to be complied by him.

For employee it is straight forward. Only an independent agent is given an opportunity to be heard if they wish to deem him as the PE of foreigner and that do on grounds of near exclusive working for the foreigner as his only work. An employee or dependent agent need not be given opportunity to prove that he is not the PE. 

 There is no PE concept in income tax. It uses the word, business connection only . PE concept only in DTAA/OECD  provisions. " Employers deemed PE has to deduct tax" where in income tax it is stated? " resident employee has to deduct tax on behalf of employer" which section says that?

Hi Sudarshan,

You are right. Employee is PE only in DTAA and not in Section 9. I guess what is beneficial to the assessee prevails. Therefore if you disregard the DTAA and rely on Section 9 as beneficial to the salaried employee, non resident is liable to deduct TDS only if the employee does work that is towards earning income that is deemed taxable in India. To be allowed the payment of salary or other fees as expenses he will have to comply with TDS. That is if he has taxable income in India.

However, taxability of income arises if there is a Permanent Establishment. If the non-resident relies on the DTAA for his taxability and rates, then I do not think he can take a diferrent provision for the condition of PE. Everything will be case to case basis and NR should apply for the Advance Rulings. It depends on whether you can take the head from section 9 and arms and legs from DTAA. We better check this out. The important thing for the resident employee is no income tax should get deducted from his salary abroad. Then he has to take relief either u/s 9 or the DTAA.

 Actually DTAA supersede taxation law of member country and for the portion on which DTAA applies, individual country has to be abide by DTAA and NOT local taxation law. Hence PE concept is relevant and applicable in cases where recourse is to DATT.

However in the subject of this thread, the PE is not applicable because, the Income is not deemed taxable in India

i) Mr Reddy has said that he will be working as a consultant FROM India for services rendered OUT of India. Thus he is not a PE for his retainer US company but an independent person supplying certain services. However he MAY become PE for US company if his services include furthering business interests of US Co. in India and his pyment can be deemed to be for that purpose also.

ii) Even he or Design Engineer in my case, were EMPLOYEE of US Company, working FROM India and  rendering services OUTSIDE India, and IF there is NO business linkage, set up or tie ups of that US Employer IN India a "Nexus" ) then also the sole employee is not a PE in India and is not liable for TDS and other related compliance.

Ipso facto, the employer in US is also not liable to deduct tax and remit it to India. In fact The employer in US IS liable to deduct and pay tax to US IRS and Not India. The payee in India only can claim relief in India of tax so deducted and paid to IRS in US.

As for KPMG and Kapadia's PPT and SC ruling (referred by me) and several other similar case law have clerified IN WHAT circumstances Employer is liable to deduct tax and pay to Indian Revenue. NONE OF THESE circumstances apply to our two case under discussion and hance they are NOT applicable in case of Mr. Reddy or Design Engineer. I have referred to them exactly for this. UNLESS the conditions mentioned in these attachments/cas law are fulfilled, Employers are NOT liable (negative law) for TDS etc which is the case for our two referals.

 Sunil,

Pl note that in ALL cases each employee can not be deemed to be PE and our two cases fits that. The documents & materials referred by me establishes a PE set up in India AND The fact that the employees were rendering services IN INDIA (what is rendering of services is dealt with by the material/case law referred by me). That is why their employer was liable to deduct tax and pay it to Indian Revenue. It does NOT make each employee a PE of an overseas Co. in other country

 Some more material attached, on tax on expatriates in India. Pl note, in context of the issues of this thread, only certain aspects are relevant. Also, specific cases are not directly addressed. Most of the discussion is based on scenario where some employee is on deputation or employer has a PE etc in India. But  will add to the clarity on the thread subject. 

 And this attachment