Even if Non Resident , Your Salary is Taxable in Both Countries!

• As you are resident of India for FY 2006-07, your GLOBAL income is taxable. Therefore all of your income whether you earn n India or abroad , shall be liable to tax . However, you may claim tax relief u/s 90 of the I T Act if any tax is paid in Indonesia.
• I am afraid , even in next year when you become Non Resident, your salary will be taxable in India for the simple reason that your IIndonesian company is paying you major part of salary to a Bank in India . Thus income is received in India. Section 5 [2] of the I T Act says ” the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which (a)is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year.”Therefore, even if you are Non Resident, your salary will be taxable in India.
• Salary will be taxable also in Indonesia on account of Article 15 of the DTAA . Excerpts of relevant Article 15 is given for your ready reference [ Read Contracting State as India and Other Contracting as Indonesia ]
  
• “ARTICLE 15 - Dependent personal services -
  
• 1. Subject to the provisions of articles 16, 17, 18, 19, 20 and 21 salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.
  
• 2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State, if :

• (a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve-month period ; and
• (b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State ; and
• (c)the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.

Therefore what the aforesaid Article 15 states is that if an Indian is paid salary in Indonesia, he shall be taxed in Indonesia also even if he is on employment in Indonesia.

Saving Grace- the Relief
The DTAA signed between the two countries provides relief described under Article 23 . As per the article, India will allow credit of tax paid in Indonesia and Indonesia will provide credit for tax paid in India. The relevant excerpts are below

Article 23 - Elimination of double taxation -

• 1. The laws in force in either of the Contracting States shall continue to govern the taxation of income in the respective Contracting States except where provisions to the contrary are made in this Agreement.
• 2. The amount of Indonesian tax payable, under the laws of Indonesia and in accordance with the provisions of this Agreement, whether directly or by deduction, by a resident of India, in respect of profits or income arising in Indonesia, which have been subjected to tax both in India and in Indonesia, shall be allowed as a credit against the Indian tax payable in respect of such profits or income provided that such credit shall not exceed the Indian tax (as computed before allowing any such credit) which is appropriate to the profits or income arising in Indonesia. …
• 4. The amount of Indian tax payable under the laws of India and in accordance with the provisions of this Agreement, whether directly or by deduction, by a resident of Indonesia, in respect of profits or income arising in India, which has been subjected to tax both in India and in Indonesia, shall be allowed as a credit against Indonesian tax payable in respect of such profits or income provided that such credit shall not exceed the Indonesian tax (as computed before allowing any such credit) which is appropriate to the profits or income arising in India.

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