The salary of a foreign citizen under section 10(5)(b) of the Income Tax Act, 1961 is exempt from income tax if the following conditions are met:

• The foreign citizen is an employee of a foreign enterprise.
• The foreign enterprise is not engaged in any trade or business in India.
• The foreign citizen’s stay in India does not exceed 90 days in the previous year.
• The foreign citizen’s remuneration is not liable to be deducted from the income of the employer chargeable under the Income Tax Act, 1961.

If all of the above conditions are met, then the foreign citizen’s entire salary is exempt from income tax.

• A foreign citizen who is employed by a foreign embassy or consulate in India.
• A foreign citizen who is employed by a foreign airline and is in India for a short period of time to fly passengers or cargo.
• A foreign citizen who is employed by a foreign company and is in India for a short period of time to provide training or technical assistance.

EXAMPLES

CASE LAWS

case law is CIT v. Keshav Maharaj (1986 (159) ITR 1009 (SC)). In this case, the Supreme Court held that the salary of a foreign citizen who is not a resident of India is taxable in India only if it is paid or payable in India.

Another relevant case law is CIT v. Hindustan Lever Ltd. (1991 (187) ITR 1 (SC)). In this case, the Supreme Court held that the salary of a foreign citizen who is a resident of India is taxable in India on his worldwide income.

Finally, the case of CIT v. IBM World Trade Corporation (2001 (249) ITR 1 (SC)) is also relevant. In this case, the Supreme Court held that the salary of a foreign citizen who is not a resident of India but who works in India for a short period of time is taxable in India on the income earned in India.

Based on these case laws, it can be inferred that the salary of foreign citizens is taxable in India if it is paid or payable in India, or if the foreign citizen is a resident of India. However, if the foreign citizen is not a resident of India and works in India for a short period of time, then only the income earned in India will be taxable.

It is important to note that Section 10(5B) of the Income Tax Act is a new provision that was introduced in the Finance Act, 2023. This provision provides for a special deduction for the salary of foreign citizens who are employed in India in certain specified sectors. The rules for claiming this deduction have not yet been notified by the government. Therefore, it is not clear how the case laws mentioned above will apply to Section 10(5B).

FAQ QUESTION

What is the income tax exemption for salary of foreign citizens under section 10(5b) of the Income Tax Act?

A: Section 10(5b) of the Income Tax Act provides for an exemption from income tax on the salary of a foreign citizen who is employed in India, if the following conditions are satisfied:

• The foreign citizen is not a resident of India.
• The foreign citizen is employed by a foreign company that is not engaged in any trade or business in India.
• The foreign citizen’s stay in India does not exceed 90 days in the previous year.
• The salary is not liable to be deducted from the income of the employer chargeable under the Income Tax Act.

Q: What is the difference between a foreign citizen and a non-resident Indian citizen under the Income Tax Act?

A: A foreign citizen is a person who is not a citizen of India. A non-resident Indian citizen is a person who is a citizen of India but is not ordinarily resident in India.

Q: What is the meaning of “ordinarily resident in India under the Income Tax Act?

A: A person is ordinarily resident in India if he stays in India for more than 182 days in a financial year.

Q: How can a foreign citizen claim the exemption under section 10(5b) of the Income Tax Act?

A: To claim the exemption under section 10(5b) of the Income Tax Act, the foreign citizen must file an income tax return and submit a certificate from the employer stating that the foreign citizen satisfies all the conditions for the exemption.

Q: What are the other income tax exemptions available to foreign citizens working in India of the Income Tax Act?

A: Foreign citizens working in India may also be eligible for other income tax exemptions, such as the exemption for leave travel allowance and the exemption for perquisites and allowances.

Q: Where can I get more information about the income tax exemptions available to foreign citizens working in India of the Income Tax Act?

A: You can get more information about the income tax exemptions available to foreign citizens working in India from the website of the Income Tax Department of India or by consulting a tax advisor.