Income Tax Rule For IT Sector Employees Working On Foreign Projects: The recent fall in the value of the Indian Rupee (INR) against the US dollar (USD) will increase the disposable income in the hands of IT sector employees working on company projects outside India. However, such excess income in the hands of employees would be taxable if not already spent on meeting day-to-day expenses.
“One of the implications of devaluation of Indian rupee is that it would increase the disposable income in the hands of the employee and in case of any excess, such income would be taxable in the hands of the employee based on the specified conversion rates,” says Dr Suresh Surana, Founder, RSM India.
Several companies, specially in the IT sector, send their employees to foreign countries for particular projects or for a temporary period of time. Such employees are provided with a per diem allowance for meeting day-to-day expenses during the period of onsite client visit.
The per diem allowance is not taxable if the employee spends the full amount while working on the company project outside the country, according to the tax expert.
“Many employers (generally from the IT sector) depute their employees to other foreign countries for a particular project or for a temporary period of time. The terms of such employment may differ across entities, but taking a general view, many employers tend to provide monetary benefits to their employees, in the form of daily allowance for incurring expenses during their period of onsite client visit,” says Dr Surana.
Dr Surana further says that as per the provisions of Section 10(14)(i) read with Rule 2BB(1) of the Income Tax Act, 1961 (‘IT Act’), such per diem allowance provided by the employer to his employee, which is incurred wholly and exclusively to perform his duties shall not be subject to tax in the hands of the employee if:
- allowance is provided while on his tour to the foreign country and away from his normal place of duty, and
- the employee has actually incurred the expenses.
For example: Take the case of an employee, who receives $500 as a part of the per diem allowance while rendering services outside India for a specific project for a period of 1 month. He spends $300 on meeting his day-to-day personal expenses and the balance of $200 is unspent.
In the above case, $300 would be exempt from taxation while the remaining $200 will become taxable in the hands of the employee.
“If the employee does not spend the entire amount of allowance while rendering services abroad exclusively for his duties, the balance will be subject to tax in India. However, it is notable that, any allowance/perquisite allowed by the Government of India to an Indian Citizen outside India for rendering service outside India, the same is fully exempt from tax in India as per the provisions of section 10(7) of the IT Act,” says Dr Surana.