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Global professionals often face double taxation issues when they work abroad but continue receiving salary in India. A recent decision of the Income Tax Appellate Tribunal (ITAT), Mumbai provides important guidance on how salary earned overseas but paid in India should be taxed and how taxpayers can claim Foreign Tax Credit (FTC) under the India-UK Double Taxation Avoidance Agreement (DTAA).
This ruling is particularly relevant for NRIs, expatriates, and employees on international assignments, especially those working abroad while remaining connected to Indian employers.
At Dinesh Aarjav & Associates, we regularly advise global professionals and NRIs on cross-border salary taxation, DTAA relief, and foreign tax credit claims, and this case highlights key principles that many international employees should understand.
In the case Amit Satpathy vs DCIT (Assessment Year 2017-18), the taxpayer filed an income tax return in India declaring total income of approximately ₹61.75 lakh and claimed a refund.
However, while processing the return under Section 143(1) of the Income Tax Act, the tax department increased the income by ₹41.79 lakh due to a mismatch with the salary reported in Form 26AS.
The dispute centered on whether salary earned while working in the United Kingdom but paid by an Indian employer should be taxed in India or the UK.
The taxpayer was on an international assignment in the United Kingdom from January 2014 to July 2016.
Important details include:
The taxpayer argued that this portion of the salary should not be taxed in India because the services were performed in the UK and taxes had already been paid there.
The taxpayer relied on Article 16(1) of the India-UK DTAA, which deals with taxation of employment income (dependent personal services).
Under this provision:
Salary is generally taxable in the country where employment is exercised.
The taxpayer therefore claimed that:
This is a common issue in cross-border salary taxation cases where employees work abroad but receive salary from Indian companies.
The CIT(A) rejected the taxpayer’s argument and held that the income was taxable in India.
The reasoning was based on Article 16(2) of the India-UK DTAA, which provides an exception where salary remains taxable in the employee’s home country if certain conditions are met.
The authority concluded that:
Because these conditions were satisfied, the appellate authority held that the salary remained taxable in India, and the addition of ₹41.79 lakh was upheld.
When the matter reached the Income Tax Appellate Tribunal (ITAT), the taxpayer made an alternative argument.
Even if the salary is taxable in India, the taxpayer argued that double taxation must be avoided.
Therefore, he requested Foreign Tax Credit (FTC) for the taxes already paid in the UK.
To support the claim, the taxpayer submitted:
The Tribunal noted that the taxpayer had produced documents showing that tax had already been paid in the United Kingdom on the salary earned for services rendered there.
Instead of deciding the DTAA interpretation immediately, the ITAT held that:
The Tribunal therefore sent the matter back to the Assessing Officer for verification of the foreign tax credit claim.
The appeal was allowed for statistical purposes.
This ruling highlights several important principles for cross-border salary taxation involving India.
1. Salary earned abroad may still be taxed in India
If an individual is Resident and Ordinarily Resident (ROR) in India, global income may become taxable in India even if the services are performed abroad.
2. Employer location matters under DTAA
If the salary is paid by an Indian employer, treaty provisions may still result in taxation in India depending on the 183-day rule and other conditions.
3. Foreign Tax Credit prevents double taxation
Even if income becomes taxable in India, taxpayers can claim credit for taxes paid in the foreign country under the applicable DTAA.
4. Documentation is essential
To claim foreign tax credit in India, taxpayers must maintain proper records such as:
International assignments have become common for professionals working in industries such as:
However, incorrect reporting of foreign salary income can lead to tax disputes, double taxation, or denial of treaty benefits.
Understanding the interaction between Indian tax residency rules and DTAA provisions is crucial for proper tax compliance.
Dinesh Aarjav & Associates is a leading international tax advisory firm with 25+ years of experience advising NRIs, expatriates, and global professionals.
Our team assists clients with:
With offices across multiple countries and presence across several states in India, we help professionals navigate complex international tax issues between India and countries such as the US, UK, Canada, UAE, and Australia.
Q.1 Is salary earned abroad taxable in India?
Ans: Yes. If you qualify as Resident and Ordinarily Resident (ROR) in India, your global income including foreign salary may be taxable in India.
However, DTAA provisions and foreign tax credit may provide relief from double taxation.
Q.2 What is Foreign Tax Credit in India?
Ans: Foreign Tax Credit (FTC) allows taxpayers to claim credit in India for taxes already paid in another country on the same income.
This prevents double taxation of the same income under international tax treaties.
Q.3 When does the 183-day rule apply in DTAA salary taxation?
Ans: Under many tax treaties including the India-UK DTAA, salary may remain taxable in the employee’s home country if:
Q.4 Can NRIs claim Foreign Tax Credit in India?
Ans: Yes. NRIs or residents earning income abroad can claim foreign tax credit under DTAA or Section 91 of the Income Tax Act, subject to compliance with Rule 128 and Form 67 requirements.
The ITAT Mumbai ruling reinforces an important principle of international taxation — even if income becomes taxable in India under treaty interpretation, double taxation should be eliminated through Foreign Tax Credit mechanisms.
For professionals working abroad while receiving salary in India, proper tax structuring and documentation are essential to avoid unnecessary tax disputes.
If you are an NRI, expatriate, or global employee dealing with India-UK taxation or other cross-border tax issues, expert advice can help ensure compliance while minimizing tax exposure.
Dinesh Aarjav & Associates provides specialized advisory on international taxation, DTAA planning, foreign tax credit claims, and NRI tax compliance.
For professional guidance on cross-border taxation between India and foreign jurisdictions, you can connect with our international NRI tax advisory services team.
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