Facts of the Case:
An employee sent to the US by a company during the year for a specific period on an assignment. The employee receives his salary in India and allowances in the US during the period of stay in the US. Even though the basic salary of the employee will credit to his Indian bank account, employee allowances will credit to his US bank account. On the amounts paid to the employee, the company (Employer) requires to deduct TDS. Should the TDS deduction do under Section 192 or Section 195?
Analysis:
The residential status of the assessee plays a vital role in determining the taxability of income received by him. Therefore right from deciding whether the income received is taxable in India to the rate of taxation. Where the assessee is a resident of both tax jurisdictions, Article 4 of DTAA will break the tie. India reserves the right to tax global income received by the assessee if the assessee is a resident. The Government of India entered into DTAA hence ensuring that a particular income is not taxable in more than one jurisdiction.
Where salary receives by an employee deputed outside India from an Indian Company, there arises a question as to the amount of taxable income and the section under which tax deduction at Source.
In this scenario, there are 2 sections that govern the taxability payments made to NRs who are receiving a salary.
1. Section 195
As per Sec 195 of the Income Tax Act, it is specifically mentioned (any other sum chargeable under the provisions of this Act not being income chargeable under the head “Salaries”) that any sum that is being paid to an NR other than sums by way of salary is subject to tax deduction at source under Sec 195. This makes it clear that any sum paid, which is chargeable under the head salary, would be subject to TDS. (if such sum exceeds the prescribed limits) under Sec 192 and not under Sec 195 of the IT Act, 1961.
2. Section 192
There is an employer-employee relationship, between the employee who deputed and the Company. As per Sec 192 of the Income Tax Act, 1961, any person who is responsible for paying any income tax chargeable under the head Salaries require to deduct tax at source under Sec 192. Nowhere in the Act, it is specifically mentioned that the employee, being deputed, is required to be a resident of India for TDS to be deducted under Section 192.
Conclusion:
Any sum of money receives by an employee, which is subject to tax under the head Income from Salaries, is subject to TDS (If the income crosses the prescribed limit) under Sec 192 of the Income-tax Act, 1961 per the reasons discussed above.
