Multinationals depute their employees into India to exclusively provide service (work) for the Indian enterprise. These employees (foreign nationals) so deputed to India will be paid part of the salary in India (INR) and partly in their home country (Foreign currency). The salary which is paid in India is usually paid by the Indian enterprise in Indian Rupees and TDS is deducted on the same. The foreign portion of the salary is paid by the parent company in foreign currency directly to the foreign employee. As the foreign employee deputed in India does service exclusively for India and by virtue of his employment spends most of his time in India and thereby reaching the status of “Resident and Ordinarily resident” he pays advance tax on the portion of the salary earned by him in the foreign country.
Now, in a landmark judgement the supreme court in Commissioner of Income-tax, New Delhi vs. M/s Eli Lilly & Company (India) Pvt. Ltd [Civil Appeal No. 5114 / 2007 – Supreme Court] has held that, the salary paid by the foreign company is for services to be rendered in India and no work was performed for the foreign company. Therefore the Indian company is liable to deduct tax at source on the overseas income.
This judgement in short, requires the Indian company to deduct tax at source and pay monthly (as done for the Indian salary portion) on foreign incomes of employees deputed in India for performing services to the Indian company.
There can be a case where the total tds to be deducted from INR Salary exceeds the INR salary payable in India. This will cause a practical difficulty for the employees as well as employer companies.
ReplyDeleteYes you are absolutely right, that is where the component of salary which needs to fixed in INR is a big topic now. It should cover apart from living expense in India plus this TDS component also (for foreign income). I am not sure whether you are aware of the new Provident Fund amendment which mandates all foreign nationals working in India to contribute to the provident fund, this also needs to be covered in the INR salary.
ReplyDeleteSo living expenses, TDS & PF should form part of Indian salary for foreign nationals working in India.
Yes you are absolutely right, that is where the component of salary which needs to fixed in INR is a big topic now. It should cover apart from living expense in India plus this TDS component also (for foreign income). I am not sure whether you are aware of the new Provident Fund amendment which mandates all foreign nationals working in India to contribute to the provident fund, this also needs to be covered in the INR salary.
ReplyDeleteSo living expenses, TDS & PF should form part of Indian salary for foreign nationals working in India.
It is a big headache for foreign nationals working in India but a great oppurtunity for Big Auditors to redraft such employee contracts. I believe So far their INR salary would be a smaller componenet of their total compensation package which will totaly change hereinafter. So Indian Co's have to budget for huge INR payout towards foreign national compesation.
ReplyDeleteWhat about person working from India on US server remotely on out souring work and paid in US bank account by US company and does not have any other Permanent establishment except this employee and no income from India and in fact no opertaion in India is liable to TDS?
ReplyDelete