Will I Be Taxed In India For My Dutch Salary?

August 5, 2007 by taxworry · 2 Comments

I am an Indian resident working with a multinational company at the Hague – the tenure is for six months – I have got a Dutch resident permit for this period and have paid tax to the Netherlands Government at the rate of 42%. I understand that India has a DTAA with India – hence, I presume that I do not have to pay tax (rate: 32%) to the Indian government. Is my understanding correct? kakoli

There is double taxation avoidance agreement between India and Netherland. Article 15 of the agreement deals with salary & wages. The said article is given as under

ARTICLE 15 – Dependent personal services – 1. Subject to the provisions of Articles 16, 18, 19, 20 and 21, salaries, wages and other similar remuneration derived by a resident of one of the States in respect of an employment shall be taxable only in that State unless the employment is exercised in the other 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 one of the States in respect of an employment exercised in the other 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 the fiscal year concerned, 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 as per general rule in Article 15(1) since you are carrying employment in Netherland , it should be taxed in Netherland only . However , I find that if you do not stay in Netherland for 183 days in the year in which you earned the salary ,Article 15(2) makes your salary taxable only in India. Therefore, you must stay in Netherland for at least 184 days even if the employment contract is only for 180 days (6 months).

What happens if the Income become taxable in India ?

If the salary earned in Netherland becomes taxable in India, there is nothing to worry as there is relief mechanism provided in DTAA in Article 23 ( 4) as under

Article 23(4). In India, double taxation shall be eliminated as follows:

Where a resident of India derives income or owns capital which, in accordance with the provisions of this Convention, may be taxed in the Netherlands, India shall allow as a deduction from the tax on the income of that resident an amount equal to the income-tax paid in the Netherlands, whether directly or by deduction; ….”

Section 91 of the I T Act provides clear way of computing the tax relief in case of double taxation. To know mpre aboiut computation of tax relief Read this.

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Comments

2 Responses to “Will I Be Taxed In India For My Dutch Salary?”

Vaibhav says:

April 17, 2008 at 2:17 pm

This is totally incorrect interpretation of Tax Treaty. Further the methodology followed is also flawed.

I wish such questions were so easy to answer!!
What is in a Name ? says:

April 17, 2008 at 2:46 pm

Dear Vaibhav

You have left comment in half . Make readers welathy by sharing your thoughts on this issue. So that readers get a view of your interpretation .

Conclusion should be done in the last line of an argument only.

taxworry