If you're getting a salary from two different sources, then you need to manage your bank accounts properly. Here's a handy guide.
Queries you asked:
I am working for TCS and on India payroll only. Right now am in London. When I ask TCS about the status of tax paid on UK allowances they say that they do deposit tax on our behalf but what we get is a constant amount and that too as allowances not a salary. I have got queries regarding the allowances I am getting here in UK.
I'm an employee of an Indian company and currently working in Dubai for 3 months, on deputation. I'll be here till May 2007. But I visit India every 3 months. So my question is do I get NRI status in spite of my visits to India once in every 3 months. As far as my knowledge goes a person would get the NRI status if he is residing out of India continuously for 181 days.
I am a software eng and I am onsite to UK since last 3 months. Initially the contract was of 3 months only but now it seems that I might have to stay for 1 and half year. Will I be treated as NRI since I will be staying for continuous 182 days outside India. I have bank accounts in India. Do I need to change the status for all of them also?
preceding that year, then he is India for less than 60 days in that year.
Example 1: If Mr. Shah, who has not been in India for more than 4 years comes to India on 1st January 2006 and returns to his home country on 31st May 2006. He will still be called a non-resident in India as he has satisfied both the conditions i.e. I) He has stayed for less than 182 days during the financial year 2005-06 and ii) Since he has not come to India during the last 4 years, the second condition will not apply at all
Example 2: Assume in the example above that Mr. Shah has been coming to India regularly and his total stay during the last 4 years has exceeded 365 days. In this case, he will become a resident in India in the year 2005-06 as he will not satisfy the second conditions which says that if your stay in India has exceeded 365 during the last 4 years then your stay in India should be less than 60 days in the current year in order to qualify for non resident status. As Mr Shah is in India from 1st January 2006, he has stayed for more than 60 days in financial year 2005-06.
What are the types of remunerations an employee would receive?
Let us first understand the various ways in which an employee will receive his remuneration when he goes abroad:
We need to understand the implications of each of the above types of travel.
Case 1: Salary in India and Allowance in foreign currency
Usually when an employee goes on a short-term tour ranging from a few days to few months, he continues to be on the payroll of the Indian company and is merely deputed abroad on a temporary assignment at the client’s location. In such a case, he does not become a Non Resident Indian (NRI) at all as one of the criteria for becoming an NRI is that the visit abroad should be for the purpose of taking up employment in that country or your visit is of an indefinite period.
The Tax controversy
One area of controversy in dealing with the foreign currency brought into India is the taxation aspect. The Indian taxation law i.e. the Income Tax Act, 1961 prescribes that any kind of allowance paid by or on behalf of the employer becomes taxable in the hands of the employee. Thus the foreign travel allowance is also taxable in India and your employer should ideally have paid you the allowance after deducting tax thereon. If not, there is a chance that either you are the employer may be questioned by the Income Tax Department as to why the tax has not been paid on the allowance.
Case 2: Salary in India and also in foreign currency
If you are being paid a salary in India as also in foreign currency, we have to check the nature of your visit viz:
Case 3: Salary in foreign currency only
This is the simplest case. If you are getting a salary in foreign currency, it means you are an NRI and eligible to open the Accounts available to NRIs (NRE / NRO / FCNR (B)) etc. In addition to these accounts which will be opened in India, you will probably have to open an Account in the Bank of the foreign country as your salary will firstly be deposited to that Account as also you may have to make local payments in that country like lease rentals, purchase of car etc.
The Practical Dimension
In practice you will notice that it is difficult to determine whether you have gone for an indefinite period or it’s a visit for a fixed duration. Hence you will find that, the moment you go to the Bank and tell that you are being shifted abroad for a project, they will immediately ask you to open an NRE / NRO Account. This is because of the peculiar nature of our foreign exchange law, which prescribes that the moment you are going outside India for employment, or to start a business or for any other purpose for which it is not possible to determine the period of stay, you become a NRI. And the moment you become a NRI you are eligible to open all types of NRI Accounts.
(The expert, Vinit Deo is a Chartered Accountant and CEO of ITLogy FPO Services Pvt. Ltd.)
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