The Income Tax Appellate Tribunal (ITAT) in Ahmedabad has delivered a major judgment that brings significant relief to Non-Resident Indians (NRIs) working abroad. The tribunal ruled that salary earned by an NRI for services rendered outside India is not taxable in India, even if the money is directly credited to an NRE bank account in India. This ruling came during the hearing of Kaushal Ganpatbhai Patel vs. ITO, where the tribunal quashed a tax demand on income that was remitted from Seychelles.
Why did the Tax Department send a notice?
The dispute started when the Income Tax Department noticed that the taxpayer’s salary was credited directly to his NRE account in India. The department argued that under Section 5(2)(a) of the Income Tax Act, income “received” in India is taxable. They claimed that since the money hit the Indian bank account first, it counted as income received here. Based on this, they added the foreign salary and other amounts to his taxable income for the assessment year 2019-20. The total addition made by the department was over ₹1.87 crore, which included salary and other bank credits.
What did the Tribunal rule regarding NRI Salary?
The ITAT Ahmedabad bench, led by Judicial Member Shri Sanjay Garg and Accountant Member Smt. Annapurna Gupta, rejected the tax department’s logic. The tribunal clarified the difference between “receiving” income and “applying” income. They stated that the salary was earned in Seychelles where the work was done, so the lawful right to receive the money arose there. Sending it to an Indian bank account is merely a transfer of money already earned. The tribunal deleted the following additions:
- Foreign Salary: ₹44.24 lakh earned from VJP Company, Seychelles.
- Unexplained Investment: ₹42.81 lakh in foreign currency.
- Bank Credits: ₹1.00 crore held as unexplained credits.
This decision confirms that NRIs can remit their foreign earnings to India without fear of it being taxed as Indian income, provided the source of employment and services rendered are outside India.
