The taxation of overseas income for NRIs is one of the most debated topics in Indian tax law. Let’s break it down in a Q&A format with practical examples and simple explanations.
1. What is the central issue concerning NRIs and their overseas income in Indian bank accounts
The main question is: Does income earned abroad become taxable in India if it is later deposited in an Indian bank account?
• Recent Court View: If income was not taxable at the time it accrued abroad, simply transferring it to an Indian account should not trigger taxation.
• Supreme Court View: Income received in India, regardless of where earned, is taxable.
⚖️ Practical Insight: This difference of views creates confusion. For example, salary earned in Dubai (tax-free) is not taxable at accrual. But once remitted into an Indian savings account, tax officers may argue it becomes taxable.
2. Key distinction between “receipt” and “remittance”?
• Receipt of income = When money first comes under your control.
• Remittance = When you transfer already received money from one account to another.
📌 Example:
• NRI earns $5,000 in the US → credited to US bank. This is the receipt.
• Later, he transfers $2,000 to his NRE account in India → this is a remittance, not a fresh receipt. Hence, not taxable.
🔑 Key Insight: Only the first receipt matters for taxation.
3. How courts and CBDT have approached this issue?
• Courts and Tribunals: Overseas income should not be taxed merely because it is deposited in India.
• CBDT Circular 13/2017: Salary of non-resident seafarers earned outside India is not taxable just because it’s credited to an NRE account.
⚠️ But CBDT circulars cannot override Supreme Court rulings.
4. Why uncertainty still exists?
Supreme Court rulings (like Diwan Bahadur S.L. Mathias and Raghava Reddi) have clearly held: “Income received in India is taxable irrespective of source.”
Unless a larger bench clarifies otherwise, the risk of litigation continues.
5. Role of Double Taxation Treaties (DTTs)?
DTTs offer relief by allocating taxing rights between India and the foreign country.
• Example: Under India–UAE treaty, salary earned in UAE is taxable only in UAE (if treaty conditions are met).
• This helps NRIs avoid double taxation.
6. Documents needed to claim treaty benefits?
• Tax Residency Certificate (TRC) from the foreign country
• Form 10F (if applicable)
• Other supporting documents like salary slips or contracts
These must be submitted to your bank or employer to ensure correct tax treatment.
7. The case that brought this issue to the Supreme Court?
A widow of a merchant navy officer challenged a ruling that deducted 30% of her husband’s overseas salary as Indian income tax while calculating accident compensation. Her argument: overseas salary should not have been treated as taxable in India.
This case has wide implications for many NRIs.
8. Why caution is advised?
The Supreme Court has consistently held that “receipt in India = taxable in India.”
So if you deposit foreign income directly into a resident savings account, it may be considered taxable.
📌 Practical Tip: Always route overseas income through NRE/FCNR accounts to minimise disputes.
✨ Final Takeaways
• The real issue is receipt vs. remittance.
• Use NRE/FCNR accounts for safe remittances.
• Keep TRC + Form 10F ready for treaty benefits.
• A Supreme Court verdict will eventually decide the matter, but until then, caution is key.