Salary to Non-Resident Director

1. SALARY
TO
NON-RESIDENT DIRECTOR

2. TAXABILITY OF SALARY PAID TO
NON RESIDENT
Scope of Total Income - Section 5(2) of Income Tax Act
Subject to the provisions of this Act, the total income of any previous year of a
person who is a non-resident includes all income from whatever source derived
which
(a) is received or is deemed to be received in India in such year by or on behalf of such
person ; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year.
Explanation 1.- Income accruing or arising outside India shall not be deemed to be
received in India within the meaning of this section by reason only of the fact that it
is taken into account in a balance sheet prepared in India.
Explanation 2.-For the removal of doubts, it is hereby declared that income which
has been included in the total income of a person on the basis that it has accrued or
arisen or is deemed to have accrued or arisen to him shall not again be so included
on the basis that it is received or deemed to be received by him in India.

3. Incomes Deemed to be accrues or arise in
India - Section 9 of Income Tax Act
Following incomes are treated as incomes deemed to have accrued or arisen in
India:
• Capital gain arising on transfer of property situated in India.
• Income from business connection in India.
• Income from salary in respect of services rendered in India.
• Salary received by an Indian national from Government of India in respect of
service rendered outside India. However, allowances and perquisites are exempt in
this case.
• Income from any property, asset or other source of income located in India.
• Dividend paid by an Indian company.
• Interest received from Government of India.

4. • Interest received from a resident is treated as income deemed to have accrued or
arisen in India in all cases, except where such interest is earned in respect of funds
borrowed by the resident and used by resident for carrying on business/profession
outside India or is in respect of funds borrowed by the resident and is used for earning
income from any source outside India.
• Interest received from a non-resident is treated as income deemed to accrue or arise
in India if such interest is in respect of funds borrowed by the non-resident for
carrying on any business/profession in India.
• Royalty/fees for technical services received from Government of India.
• Royalty/fees for technical services received from resident is treated as income
deemed to have accrued or arisen in India in all cases, except where such royalty/fees
relates to business/profession/other source of income carried on by the payer outside
India.
• Royalty/fees for technical services received from non-resident is treated as income
deemed to have accrued or arisen in India if such royalty/fees is for
business/profession/other source of income carried by the payer in India.
From above we can conclude that salary for services rendered outside India is not
deemed to be accrued or arise in India.

5. Income Deemed to be received in India - Section 7
of Income Tax Act
The following incomes shall be deemed to be received in the previous year :-
(i) the annual accretion in the previous year to the balance at the credit of an
employee participating in a recognised provident fund, to the extent provided in rule 6
of Part A of the Fourth Schedule ;
(ii) the transferred balance in a recognised provident fund, to the extent provided in
sub-rule (4) of rule 11 of Part A of the Fourth Schedule ;
(iii) the contribution made, by the Central Government or any other employer in the
previous year, to the account of an employee under a pension scheme referred to in
section 80CCD.
From above we can conclude that salary received to in a bank account maintained
outside India is not covered in income deemed to be received in India.

6. Taxability of Income of a Non Resident
In case of a non resident following income are chargeable to tax India:
• Income which accrues or arises in India
• Income which is deemed to accrue or arise in India
• Income which is received in India
• Income which is deemed to be received in India
From above we can conclude that in case of a Non Resident, income which is not
deemed to accrue or arise in India (or deemed to accrue or arise outside India) is not
chargeable in India.
Thus payment of salary to a person for services rendered outside India is not
chargeable to tax in India.

7. PROVISIONS OF FEMA
Under FEMA any transaction is classified as Capital Account Transaction or Current Account
Transaction. Payment of remuneration to director will be classified as current account transaction as
per the definition given under the Act. Definitions are as follow:
Section 2
(e) "capital account transaction" means a transaction which alters the assets or liabilities,
including contingent liabilities, outside India of persons resident in India or assets or liabilities
in India of persons resident outside India, and includes transactions referred to in sub-section (3)
of section 6;
Section 6(3) Without prejudice to the generality of the provisions of sub-section (2), the Reserve
Bank may, by regulations, prohibit, restrict or regulate the following-
(a) transfer or issue of any foreign security by a person resident in India;
(b) transfer or issue of any security by a person resident outside India;
(c) transfer or issue of any security or foreign security by any branch, office or agency in India
of a person resident outside India;
(d) any borrowing or lending in foreign exchange in whatever form or by whatever name called;

8. (e) any borrowing or lending in rupees in whatever form or by whatever name
called between a person resident in India and a person resident outside India;
(f) deposits between persons resident in India and persons resident outside India;
(g) export, import or holding of currency or currency notes;
(h) transfer of immovable property outside India, other than a lease not
exceeding five years, by a person resident in India;
(i) acquisition or transfer of immovable property in India, other than a lease not
exceeding five years, by a person resident outside India;
Section 2
(j) "current account transaction" means a transaction other than a capital account
transaction and without prejudice to the generality of the foregoing such
transaction includes,-
(i) payments due in connection with foreign trade, other current business,
services, and short-term banking and credit facilities in the ordinary course of
business,

9. (ii) payments due as interest on loans and as net income from investments,
(iii) remittances for living expenses of parents, spouse and children residing abroad,
and
(iv) expenses in connection with foreign travel, education and medical care of
parents, spouse and children;
Section 5. Any person may sell or draw foreign exchange to or from an authorised
person if such sale or drawal is a current account transaction:
Provided that the Central Government may, in public interest and in consultation with
the Reserve Bank, impose such reasonable restrictions for current account
transactions as may be prescribed.
As per Schedule III of Master Direction No. 8/2015-16
A Company can pay foreign remittance upto $250,000.00 without obtaining prior
approval of any authority under the Liberalized Remittance Scheme.