Taxability of Foreign Salary Credited to NRE Account

 As per Income Tax Law, the total income of a non-resident includes income from any source that is received or deemed to be received in India during the relevant previous year.

In a recent ruling, the Ahmedabad ITAT held that salary earned by a non-resident for services rendered outside India is not taxable in India merely because it is credited to an NRE account in India. The Tribunal clarified that ‘receipt’ refers to the first occasion of control over the income, whether it is actual or constructive.

In the present case, the assessee, being a non-resident, earned salary income from employment with a company for services rendered entirely outside India. The salary was subsequently credited to his NRE bank account maintained in India. AO treated the salary as taxable on the ground that it was received in India.

Assessee contended that the salary was earned and had accrued outside India for services rendered abroad, and that the right to receive such salary arose at the place of employment outside India. It was emphasized that ‘receipt’ refers to the first occasion on which the assessee obtains control over the income, whether real or constructive, and does not extend to any subsequent remittance. The subsequent credit of the salary to his NRE account in India was merely an application or remittance of income already received outside India and, therefore, did not constitute ‘receipt’ in India.

Tribunal ruled in favour of the assessee and clarified that ‘receipt’ occurs at the first occasion when the assessee obtains control over the income, whether actually or constructively. It held that where services are rendered outside India and the salary accrues outside India, the income is deemed to have been constructively received outside India. A subsequent remittance of such salary to an NRE account in India does not constitute receipt in India, as it is merely a transfer or application of income already received. Accordingly, the salary credited to the assessee’s NRE account was held not to amount to receipt of income in India and was therefore not taxable.

The ruling underscores the clear distinction between “receipt” and “remittance” of income. For non-residents , the decisive factor is the place where the income is first received or where initial control over it is established. Mere credit to an NRE account does not, by itself, trigger taxability. It further affirms that bank credits alone cannot determine the situs of taxation.