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Exemption
from Income Tax
Eexemption
under Income Tax Act
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Under
the provisions of Income Tax Act, 1961, exemption
for short stay upto an aggregate period of 90 days
in a financial year is available subject to fulfilment
of prescribed conditions.
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Section
10(6)(vi) of the Income Tax Act, 1961 provides for
a total exemption from income tax of income derived
by an employee of a foreign enterprise for services
rendered by him during his stay in India provided
that the following conditions are fulfiled:
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the
foreign enterprise is not engaged in any trade
or business in India;
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his
stay in India does not exceed in the aggregate
a period of 90 days in such previous year; and
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such
remuneration is not liable to be deducted from
the income of the employer chargeable under
this Act.
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Section
10(6)(viii), provides for exemption from income
tax of income received by or due to any such individual
being a non-resident as remuneration for services
rendered in connection with his employment on a
foreign ship where his total stay in India does
not exceed in the aggregate a period of 90 days
in the previous year.
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Sec
10(6)(ii) provides for an exemption from Income
Tax in case of the remuneration received by an official
by whatever name called an embassy, high commission,
legation, commission, consulate or the trade representative
of a foreign state, or as a member of the staff
of any of these officials, for service in such capacity.
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Provided
that remuneration of the corresponding officials
or, as the case may be, members of the staff,
if any, of the Government resident for similar
purposes in the country concerned enjoys a similar
exemption in that country.
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Provided
further that such members of the staff are subjects
of the country represented and are not engaged
in any business or profession or employment
in India otherwise than as member of such staff.
Eexemption
under Tax Treaty
Exemptions
for short stays are also provided under the Agreement
for Avoidance of Double Taxation (DTA), as entered into
between Government of India and certain foreign countries.
The total exemption from income tax in India to foreign
individuals under DTA are subject to certain conditions.
For
example, as per Tax Treaty entered into with Germany,
(notified vide Notification No. 10235, dated 29.11.96)
, taxation of individuals, resident of Germany but employed
in India, is governed by Article 15 of the said Treaty.
The said article stipulates that an individual who is
a resident of Germany may be taxed in India on the profits
or remuneration from services derived as an employee,
or from other professional services rendered in India.
However,
Para 2 of the said Article provides an exemption to
an individual in respect of such profits or remuneration,
if all the following conditions are satisfied :
- He is
temporarily present in India for a period or periods
not exceeding in the aggregate 183 days during a financial
year; and
- Tthe
profits or remuneration are paid by or on behalf of
an employer who is resident of Germany; and
- The
profits or remuneration are not borne by a permanent
establishment or a fixed base of his employer who
is resident of Germany.
As
such, under the provisions of the Income Tax Act, 1961,
exemption upto an aggregate of 90 days stay in India,
during a financial year, is available to a foreign national
from the charge of income tax in India. However, exemption
upto a period of 183 days stay in India during a financial
year, is also available to foreign residents provided
a DTA granting specific exemption for the same is in
force between India and the country of residence.
Note
: It may be noted that the exemptions referred to
above, will not be available in cases where foreign
nationals are directly employed by an Indian employer.
Conversion
of Income Expressed in Foreign Currency
As
per the rules prescribed under the Income Tax Rules,
1962, income accruing, arising, or deemed to accrue
or arise in India, expressed in foreign currency, shall
be converted into Indian Rupees for the purpose of Indian
income tax computation.
According
to the relevant provisions of the said rule, in relation
to income under the head `Salaries', the foreign currency
shall be converted at the Telegraphic Transfer (Buying
Rate) prevailing on the last day of the month immediately
preceding the month in which the salary is due, or is
paid in advance or in arrears.
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