Income is taxed in India on the
basis of receipt or accrual. The income from salary,
however, stands in a peculiar position under the
Income Tax Act. As per Section 9 of the Act, salary
is deemed to accrue or arise in India if it is earned
in India.
As a consequence, the salary relating
to the period during which service is rendered in
India shall be treated as earned in India and, therefore,
will be liable to tax in India. The implication
of this provision is that an expatriate employee,
who receives his salary wholly outside India, or
partly in his home country and partly in India,
is liable to pay tax in India on his entire salary,
including the portion of salary received outside
India
These provisions are, however,
subject to any specific provision contained in the
tax treaty between India and the foreign country
to which the employee belongs.
So long as the liability to pay
the amount under the head ‘salaries’
arises in India, clause (ii) of Section 9 can be
invoked. If the liability to pay arises out of India
and the amount is payable outside India, clause
(ii) cannot be invoked,” a recent court judgment
stated.
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