As a non-resident Indian are you liable to pay tax in India? In one such case, the Income Tax Appellate Tribunal (ITAT), Bangalore, has granted relief to an employee who received a tax notice over salary payments made by his foreign employer to his Non-Resident External (NRE) bank account in India.
What the case is about
A man from Karnataka moved to South Korea to work for a company that had won a major project from Samsung Heavy Industries in South Korea.Under the arrangement between Samsung Heavy Industries and Ocean Rig UDW Inc., the man was required to work at Samsung’s shipyard from September 2014 to June 30, 2016.Also Read | Man invested Rs 10 lakh, which tax department treated as unexplained; he first cited cash loan, then bank withdrawals as source, ITAT Nagpur deletes addition and Rs 2.11 lakh penaltyHis responsibility was to supervise the construction of a vessel. His employment contract reflected these terms, specifying his designation as a supervisor and stating that he would work as an electrician at the project site in South Korea, according to an ET report based on the claims made in the judgement. His salary was fixed in US dollars and transferred directly to his NRE account in India.The arrangement, however, came under scrutiny when the Income Tax Assessing Officer (AO) in Bangalore issued a tax notice. The AO pointed out that the man’s NRE account had received salary credits in US dollars and concluded that he was employed by a foreign company.The AO further noted that the man had neither filed foreign tax returns nor submitted a copy of his Tax Residency Certificate (TRC), despite working for an overseas employer. On this basis, the officer included his salary income in his total taxable income. The AO also added the difference in the interest income received, making the man liable to pay income tax on the salary credited to his NRE account.The draft assessment order also recorded that the man had not disclosed the salary income in his Indian income tax return (ITR).The Dispute Resolution Panel (DRP) upheld the AO’s position and dismissed the man’s objections. It cited his failure to provide the TRC, foreign tax returns and evidence of tax payments in Congo. The DRP also held that salary paid by an employer into a bank account in India is deemed to accrue or arise in India and is therefore taxable in the country.Challenging these findings, the man approached the ITAT Bangalore.On September 23, 2026, the ITAT Bangalore ruled in his favour and granted him relief.Also Read | Retired bank employee got Rs 12.27 lakh leave encashment and claimed Rs 3 lakh exemption in 2020, but government later hiked limit to Rs 25 lakh in 2023; ITAT Chennai allows full tax exemption
Why did the man win the case in ITAT?
ITAT Bangalore noted that the bank statements submitted by the man supported his account of the transactions. It also observed that the entries in his passport established his non-resident status during the relevant period. In view of these findings, the tribunal held that the question of taxing the salary income he received did not arise.The tribunal further clarified that whether the man had paid tax in the foreign country could not, by itself, determine whether his income was taxable in India.It pointed out that the AO had disregarded the passport and bank statements furnished by the man solely because he had not submitted other documents, including foreign tax returns, a Tax Residency Certificate (TRC) and details of taxes paid abroad.The ITAT Bangalore did not agree with this approach. It held that the AO’s conclusion was not correct when the man had been able to establish that he was a non-resident during the relevant assessment period.The tribunal said: “The NRE account also establishes the fact that the assessee had received the salary in USD. In such circumstances, the assessment order passed by the AO is not in accordance with the provisions of the Act.”ITAT Bangalore also held that the man’s failure to furnish the foreign tax returns, TRC and details of taxes paid abroad could not be the sole reason for rejecting his claim, given that the available evidence established his non-resident status and showed that he had earned the salary in US dollars.Also Read | Grandmother and her son gifted 2.5-acre land to his second wife, who sold it; his daughter from first marriage claimed it was ancestral, but Madras HC rejects her pleaAccordingly, the tribunal set aside the assessment order passed by the AO and sent the matter back to the officer for fresh adjudication.It directed the AO to examine the man’s passport entries and NRE account records and decide the issue on the basis of these documents, without insisting on copies of his foreign tax returns, the TRC or proof of tax payments in the foreign country.Karanjot Singh Khurana, Partner at DMD Advocates, told ET that for the assessment year 2016-17, the man filed his income tax return (ITR), in which he was assessed as a non-resident.ITAT Bangalore noted that the man had already furnished evidence establishing the facts relevant to determining his tax liability in India. His passport entries and NRE bank statements showed that he was a non-resident during the relevant assessment year. On the basis of these facts, Khurana explained that the man’s foreign salary was not taxable in India, irrespective of whether he could produce a TRC or demonstrate that he had paid tax in another country.However, the ITAT Bangalore did not conclude the reassessment proceedings itself. It set aside the reassessment order and sent the matter back to the Assessing Officer for fresh consideration. The AO was directed to decide the matter on the basis of the man’s passport entries and NRE bank account records, without insisting on the TRC, foreign tax return or details of taxes paid in the foreign country.Also Read | Son claimed share in mother’s Delhi house, saying he paid Rs 1.5 lakh for land and Rs 60,000 for construction; Delhi High Court rejects claim, orders him and wife to vacate
