The Income Tax Appellate Tribunal in Delhi determined that per diem allowances earned by Indian staff working in the United Kingdom cannot be taxed in India under qualifying circumstances. This exemption holds true even when payments originate from an Indian branch or process through Indian payroll systems. In the evaluated dispute, the tribunal ruled in favor of a Bengaluru-based multinational worker who received approximately Rs 16 lakh while assigned overseas. The relief applies because beneficial treaty mechanisms override domestic tax laws when residential criteria are satisfied.
Key points
Indian workers assigned to the United Kingdom can legitimately avoid Indian domestic taxa…: Indian workers assigned to the United Kingdom can legitimately avoid Indian domestic taxation on their per diem allowances.
Payments remain exempt from Indian taxes even if disbursed directly from an Indian payrol…: Payments remain exempt from Indian taxes even if disbursed directly from an Indian payroll or domestic branch office.
Employees must properly document their overseas tax residency status to successfully leve…: Employees must properly document their overseas tax residency status to successfully leverage international tax treaty provisions over domestic law.
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If you are an Indian employee sent to work in the United Kingdom and receiving per diem payments (for living expenses and incidental costs) from your Indian employer, those payments are usually taxable in the UK under the India-UK DTAA unless specific conditions apply. The taxability of these per diem payments in the UK can vary based on several factors. However, from India perspective, they are usually not taxable if certain conditions are met under the India-UK DTAA.
For an Indian employee assigned to the UK branch of the same employer, receiving per-diem payments from the Indian branch during the period of UK assignment, the taxability in India mainly hinges on the employee’s residential status, the place where employment is exercised, the nature of the per-diem, and whether double taxation avoidance treaty (DTAA) benefits under the India-UK DTAA apply.
Recently there was a case in ITAT Delhi, involving a Bangalore employee from an MNC who was sent to work at the company’s UK branch and received a total of Rs 16 lakh in per diem payments from the Indian MNC.…
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