By CA Surekha S Ahuja
The Global Workforce Has Changed — But Tax Rules Still Follow Physical Presence
The structure of employment has transformed dramatically. Technology now allows professionals to work from almost anywhere in the world while remaining employed by companies located in another country.
A software engineer employed by a US company may visit India to meet parents but continue working remotely.
An Indian professional may travel abroad to stay with children and continue working online for the Indian employer.
Many employees now log into foreign servers, cloud platforms or corporate portals while physically sitting in another jurisdiction.
These arrangements raise a critical tax question.
If salary is paid in one country but the work is performed in another, where should the income be taxed?
This issue is governed primarily by three provisions of the Income-tax Act, 1961:
• Section 5 – Scope of Total Income
• Section 6 – Residential Status
• Section 9(1)(ii) – Income Deemed to Accrue in India
Although the legal framework is well established, disputes frequently arise because employees and employers do not maintain proper documentation showing where services were actually performed.
This guidance note explains the governing legal principles and addresses the most common practical situations arising in modern cross-border employment.
Residential Status Is the Foundation of Cross-Border Taxation
Every analysis begins with determining the residential status of the individual under Section 6.
Residential status defines the scope of income that India can tax.
Non-Resident (NR)
A non-resident is taxable in India only on:
• income received in India
• income accruing or arising in India
Foreign income earned and received outside India generally remains outside Indian taxation.
Resident and Ordinarily Resident (ROR)
A resident ordinarily resident is taxable in India on global income, regardless of where it is earned or received.
Resident but Not Ordinarily Resident (RNOR)
RNOR status applies typically to returning NRIs or expatriates who have recently relocated to India.
During RNOR status:
• foreign income is generally not taxable in India
• except where income arises from business controlled from India or services performed in India.
Therefore residential status determines the scope of taxation, while the place of service determines where salary accrues.
Where Does Salary Accrue — The Core Legal Principle
Indian courts have consistently held that salary accrues at the place where services are performed.
The Bombay High Court in CIT v Avtar Singh Wadhwan (115 Taxman 536) clarified that salary becomes payable only after services are rendered. Therefore the place of service determines the place of accrual.
This leads to a simple but critical rule.
Work done outside India → salary accrues outside India
Work done in India → salary accrues in India
The following factors do not determine accrual:
• location of employer
• country where payroll is processed
• place where employment contract was signed
• location of bank account receiving salary.
The physical location of the employee while performing services remains decisive.
Salary Earned Abroad but Remitted to India
Another frequent misconception relates to remittance of foreign salary into India.
Many employees believe that once foreign salary is transferred to India or deposited in an NRE account, it becomes taxable in India.
Indian law does not support this view.
Explanation 2 to Section 5 clarifies that income already received outside India cannot again be treated as income received in India merely because it is subsequently remitted.
The CBDT in Circular No. 13 of 2017 clarified this principle while dealing with salary of non-resident seafarers credited to NRE accounts.
Tribunal decisions including Kaushal Ganpatbhai Patel v ITO and Arumugam Rajasekar v ITO reaffirm that such remittances represent application of income already earned abroad.
Accordingly, if a Non-Resident earns salary abroad and later transfers money to India, the remittance itself does not create Indian tax liability.
Remote Work from India for a Foreign Employer
The tax position changes when the employee physically performs employment duties while located in India.
Under Section 9(1)(ii), salary is deemed to accrue in India when services are rendered in India.
Therefore if an employee stays in India and continues working for a foreign employer, the portion of salary attributable to those services may become taxable in India.
This remains true even if:
• the employer is located outside India
• payroll is processed abroad
• salary is credited to a foreign bank account
• the employment contract is governed by foreign law.
The place of service overrides all other factors.
Does Working Only Through Overseas Portals Change the Position
In modern workplaces employees often access company systems through VPN networks, cloud platforms or overseas portals.
Some employees assume that if the digital infrastructure is located abroad, the services are considered to be performed outside India.
Indian tax law does not adopt that interpretation.
The relevant factor is where the employee is physically located while performing the work.
If the employee sits in India and logs into an overseas portal, the services are still regarded as rendered in India.
The location of:
• servers
• databases
• corporate portals
• cloud infrastructure
does not determine the place of accrual of salary.
Scenario Analysis – Real Life Situations Frequently Seen
NRI visiting India while continuing work
An NRI may visit India to meet parents while continuing employment duties online.
If the individual remains non-resident, taxation depends on whether services are performed during the stay.
If work is performed in India, salary attributable to those services may accrue in India.
If the visit represents pure leave and no services are rendered, salary continues to accrue outside India.
Documentation confirming leave status becomes important.
NRI visiting India but working only on employer portal
Accessing the employer’s overseas systems while physically in India does not change the tax principle.
The services are still regarded as performed in India because the employee is physically present in India while working.
NRI visiting India but receiving salary abroad
Receiving salary in a foreign bank account does not override Section 9(1)(ii).
If services are performed in India, the salary relating to those services may still accrue in India.
Resident Indian visiting children abroad and working remotely
If an Indian resident travels abroad and continues working remotely for the Indian employer, the salary remains taxable in India because residents are taxed on global income.
However the host country may also claim taxation rights if services are performed there.
In such cases DTAA relief and foreign tax credit mechanisms apply.
Resident Indian working from employer office abroad
If the employee works from the employer’s office abroad, the services are clearly rendered outside India.
But if the individual remains resident in India, the income continues to be taxable in India subject to foreign tax credit.
Employee working partly in India and partly abroad
Where duties are performed across multiple jurisdictions, salary may need to be apportioned based on working days in each country.
Such situations are common in multinational employment structures.
Returning NRI qualifying as RNOR
A returning professional may qualify as RNOR for a transitional period.
During RNOR status, foreign income generally remains outside Indian taxation.
However salary relating to services performed in India becomes taxable.
Thus remote work from India may trigger Indian tax liability.
Managing High Value NRE Deposits
Large deposits in NRE accounts frequently trigger queries under AIS or Statement of Financial Transactions reporting.
Although interest on NRE deposits remains exempt under Section 10(4)(ii), tax authorities may ask about the source of funds.
Maintaining documentation linking NRE deposits to overseas salary receipts helps resolve such queries quickly.
Employer Compliance Responsibilities
Employers managing globally mobile employees must establish clear compliance procedures.
Employment contracts should clearly identify the primary location where services are expected to be performed.
Where remote work from another jurisdiction is permitted, employers should issue written approvals specifying duration and nature of the arrangement.
Payroll records should maintain country wise work location details for each pay period.
Companies should also evaluate potential permanent establishment risks or payroll withholding obligations in foreign jurisdictions.
Annual employee declarations confirming travel and tax residency are also advisable.
Employee Compliance Responsibilities
Employees must maintain a clear documentation trail supporting their tax position.
Important records include:
• passport and travel history
• employment contract and remote work approvals
• logs showing the location where services were performed
• bank records showing first receipt of salary abroad
• remittance records when funds are transferred to India.
Employees should also reconcile salary information appearing in AIS or tax portal reporting systems.
The Compliance Rule That Prevents Most Tax Disputes
Most cross-border salary disputes arise not because of complicated law but because documentation does not clearly show where services were performed.
Maintaining:
• travel records
• work location logs
• employment approvals
• salary receipt documentation
usually resolves such issues even during scrutiny proceedings.
Conclusion
The rise of remote work and global employment has created complex cross-border payroll structures, but the taxation principles under Indian law remain clear.
The place where employment services are performed determines where salary accrues.
The residential status of the individual determines whether global income becomes taxable in India.
Salary earned abroad and later remitted to India does not automatically become taxable for non-residents. However when employment services are performed in India, even temporarily through remote work, the corresponding portion of salary may become taxable in India.
In an era where professionals work through overseas portals while travelling between countries, disciplined documentation and proactive compliance are essential.
Employees and employers who maintain transparent records regarding travel, work location and salary flows can ensure that cross-border employment income is taxed correctly — and avoid unnecessary litigation with tax authorities.
