The sudden imposition of travel restrictions all over the world due to the COVID-19 pandemic left many stranded away from home. Consequently non-resident Indians, who had been visiting the country, were unable to return and many Indians were stranded abroad.
NRIs Stranded in India
As India imposed the world’s biggest lockdown, non-resident Indians, who had been visiting the country, were unable to return. With work from home, and minimal flights back, many are still working from India.
Indians Stranded Outside India
Similarly, in most of the Countries of the world travel restrictions were imposed and consequently Indian citizens who temporarily left India for personal or business purposes are unable to return to India.
Now the question arises in respect of Income Tax implications which have changed significantly for the individuals who are stranded.
The scenario which consequently arises in these circumstances is that the the country where the employee resides will impose tax on the employee’s salary income by virtue of his employment in that country, residence, or any other similar factor; and the destination country where the employee is visiting temporarily, but got stuck due to travel restrictions may seek to tax the salary income as the employee is working remotely from that country.
In order to avoid double taxation, the government has stressed upon its existing tax rules and Double Taxation Avoidance Agreement (DTAA).
Individuals rendering services in India for a shorter span may be eligible to claim short stay exemption under the relevant DTAA provided certain conditions are satisfied namely the employee is present in India for less than 183 days in the fiscal year or rolling period of 12 months (as per DTAA); the salary is paid and borne by the overseas employer for the employee’s workdays / business visits to India; the salary is not borne by a permanent establishment / fixed base / trade or business which the overseas employer has in India; and the remuneration should not be deducted in computing the profits of any company chargeable to tax in India. It is noteworthy that the employee should be a resident in the overseas country and a tax residency certificate has to be obtained from the overseas tax authorities to that effect.
Individuals rendering services in India for a shorter span may be eligible to claim short stay exemption under the provisions of the Indian tax laws which provide an exemption to foreign nationals coming on short visits to India if certain conditions are satisfied namely the overseas employer is not engaged in any trade or business in India; the employee’s stay in India does not exceed 90 days (in aggregate) in the financial year; and the remuneration is not liable to be deducted from employee’s income chargeable to tax in India.
2. Relief to employees working in India, but stranded outside India
As per the terms of DTAA, the person working in India but have stranded outside India due to COVID-19 are entitled to exemption but subjected to certain conditions namely the employee qualifies to be a non-resident in India; the employee should be a resident in the overseas country and a tax residency certificate is obtained from the overseas tax authorities to that effect; and the employee has workdays outside India and the taxes are paid outside India on the said income. However, before claiming this exemption, one should be aware of which entity bears the salary cost and the benefit accrues to which entity (i.e. Indian entity or overseas entity).