Tax notice for getting salary in NRE bank a/c

The Income Tax Appellate Tribunal (ITAT) Bangalore just recently supplied relief to a staff member who got a tax notification for getting income on his NRE (Non-Resident External) account from his foreign company.

Mr Akka, a homeowner of Humnabad Road in Gandhi Nagar, Karnataka, emigrated to South Korea to work for Greece-based Ocean Rig UDW Inc, which had actually protected a huge task from Samsung Heavy Industries in South Korea.

According to the plan in between Samsung and Ocean Rig UDW Inc., Akka would work from September 2014 to June 30, 2016, as a manager in Samsung’s shipyard to supervise the building and construction work of a vessel. Akka’s work agreement was prepared appropriately; it was plainly discussed that Akka would be offered the classification of manager and that he would work as an electrical expert at the task website in South Korea. His wage was repaired in USD and straight paid to his Axis Bank NRE account back in India.

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The Income Tax Assessing Officer (AO) from Bangalore highlighted the concern with Akka’s plan in the tax notification. The AO observed that Akka had actually gotten the credits into his NRE account in USD; for that reason, he concluded that Akka is dealing with a foreign business.

The AO additional mentioned that in spite of his work with a foreign business, Akka has actually not submitted the Foreign Tax Returns and has actually likewise not provided the copy of the TRC (Tax Residency Certificate). The AO included the wage earnings got to his overall earnings. The AO likewise included the differential quantity in the interest earnings got. Therefore, Akka ended up being accountable to pay earnings tax on his foreign wage gotten in the NRE account.

In the draft order, the AO made the observation that Akka had not likewise stated his gotten wage earnings in his Indian tax return (ITR).

The Dispute Resolution Panel (DRP) concurred with the AO and declined Akka’s objections on the ground that he had actually stopped working to send the TRC, foreign income tax return, and evidence of the payment of taxes in Congo. The DRP likewise observed that the wage paid by the company into a savings account in India is considered to develop and accumulate in India and ought to be taxed in India.

Feeling aggrieved, Akka submitted an appeal with the ITAT Bangalore. Promote Ms Sahana T.H.M. represented him before the tax tribunal. On September 23, 2026, Akka won remedy for the ITAT Bangalore.

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Cash in NRE savings account is taxable?

An NRI’s international earnings is not taxable in India. An NRI is responsible to pay earnings tax in India just upon the following under the following situations:

• Earnings is gotten or considered to be gotten in India, or
• Earnings accrues/arises in India, or
• Earnings is considered to accrue/arise in India.

There is no basic exemption from tax in regard of credits of earnings to NRE account.

Khurana states that the Income-tax Act produces a charge of tax in regard of earnings gotten in India and the basic law ought to likewise use to earnings gotten in Indian NRE account. The understanding is subject to particular exceptions.

Khurana states: “In case of individuals entitled to benefit of tax treaties, mere receipt of income in India may generally not confer a right of tax in India where the income is otherwise not taxable in India as per the double taxation avoidance agreement (DTAA).”

Position gets blurred in cases of people who are not entitled to advantage of tax treaty (owing to home in nation which does not have tax treaty with India or compliance concerns such as failure to produce a Tax Residency Certificate). In such cases, Khurana states that earnings might possibly be taxed in India (owing to absence of advantage of tax treaty) on invoice basis.

In this regard, numerous benches of the ITAT have actually translated the arrangements freely in regard of wage gotten by a non-resident in an NRE account preserved in India.

Khurana states that the thinking embraced is that a worker’s legal right to get income emerges at the location of work, which the subsequent deposit of such wage into an NRE account in India at the staff member’ instructions makes up a simple application of earnings currently got outside India, instead of its very first invoice in India.

In assistance of this position, ITAT in the past has actually counted on Circular provided by the Central Board of Direct Taxes (CBDT) (Circular No. 13/2017). This Circular which was otherwise released particularly in relation to non-resident seafarers rendering services on foreign ships, has actually been trusted by the ITAT to conclude that income accumulated for services rendered outside India will not be consisted of in overall earnings simply due to the fact that it has actually been credited to the seafarer’s NRE account kept with an Indian bank.

Khurana states: “Accordingly, the prevailing judicial view is that salary accrued outside India does not become taxable in India merely because it is credited to an NRE account.”

How did Akka win the case in ITAT Bangalore?

Karanjot Singh Khurana, Partner, DMD Advocates, stated to ET Wealth Online in this case Akka worked for a Greece-based business that deputed him as an electrician/supervisor on a task in South Korea. For the AY 2016-17, Akka submitted his ITR and was examined as a non-resident.

Khurana states: “However, his salary in USD was credited to his NRE account held with Axis Bank in India. Subsequently, reassessment proceedings were initiated against Akka.”

Throughout the course of such procedures, Akka sent his bank declarations, passport copy, payslips and so on however might not provide his foreign income tax return, tax residency certificate (‘TRC’), or evidence of payment of tax outside India.

Considering that Akka might not provide TRC, foreign returns, and foreign tax payment information, the earnings tax department dealt with the income gotten by Akka in his NRE account in India and taxed it, together with a differential interest addition.

Upon interest the ITAT Bangalore, it was held by ITAT that the earnings tax department had actually used the incorrect test as the whole basis for taxing the wage on the facility that Akka had not produced the files discussed above consisting of TRC.

Hence, ITAT Bangalore held that Akka had actually currently shown the realities that in fact matter for Indian taxability as his passport entries and NRE bank declarations developed he was a non-resident throughout the year, and the documentary proof revealed he was utilized by a Greece-based business, operating in South Korea, and income was paid in USD in his NRE account.

On the basis of these truths, Khurana states that Akka’s foreign wage wasn’t taxable in India at all, regardless of whether he might produce a TRC or show payment of tax outside India. Summing up the position, ITAT Bangalore specified that payment of tax abroad is not the test for whether earnings is taxable in India.

It is essential to keep in mind that the reassessment order was set aside by ITAT Bangalore and remitted back to the evaluating officer for fresh adjudication, with an instructions to choose based on the passport entries and NRE account of Akka without firmly insisting on TRC, foreign tax return and payment information of tax in foreign nation.

ITAT Bangalore conversation

The ITAT Bangalore observed that the bank declaration copy submitted by Akka guaranteed the stated realities discussed by him, and if Akka’s passport copy is seen, it is shown that he was a non-resident throughout the pertinent duration. Hence, on this ground, the ITAT Bangalore stated that the concern of imposing tax on the wage earnings gotten by Akka would not emerge.

The ITAT Bangalore ruled that whether Akka had actually paid the tax in the foreign nation or not is not a ground for dealing with the earnings made by the assessee as taxable in India.

The ITAT Bangalore likewise observed that in spite of the truth that Akka had actually produced the copy of the passport and the copy of the bank declarations, the AO had actually ruled out the very same for the only factor that the files such as income tax return, TRC, and tax paid information in the foreign nation were not produced by Akka.

The ITAT Bangalore disagreed with the AO and stated that they do not believe that the stated finding is proper when Akka has the ability to show that he was a non-resident throughout the appropriate duration.

The ITAT Bangalore stated: “The NRE account likewise develops the truth that the assessee (Akka) had actually gotten the wage in USD. In such situations, the evaluation order gone by the AO is not in accordance with the arrangements of the Act.”

The ITAT Bangalore ruled that non-filing of the stated files (income tax return, TRC, and tax paid information in the foreign nation) might not be a factor for turning down Akka’s claim when the truths stay that he is a non-resident and made the earnings in USD.

Therefore, the ITAT Bangalore reserved the evaluation order framed by the AO and remitted the exact same to the file of the AO for fresh adjudication and likewise directed the AO to think about the passport entries and the NRE account information and choose the problem based upon the stated files without firmly insisting the copy of the income tax return submitted in foreign nation, TRC, and tax paid information in foreign nation.