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Hired someone who works abroad? Check this before payroll

Your Indian company has a developer in Dubai, a sales lead in London or a founder who moved to Singapore, and the first salary is due.

By Vipul Sharma, Founder. Reviewed by Preetesh Maloo, ICAI-registered Chartered AccountantLast reviewed 5 November 20264 min read

It turns on where the work is done and where the employee is resident this tax year. Salary for work done outside India by a non-resident isn't earned in India, so there is normally no salary (section 392, formerly section 192). Salary for days worked in India is taxable in India wherever you pay it. If the employee is resident in India this year, their whole salary is taxable here and you deduct as usual. Before the bank sends money abroad, Rule 220 asks for (formerly ), for a sum that isn't taxable.

Confirm this with a practising CA before you act. The answer depends on the year and your documents.

Why this happens
You hired well and the person lives abroad. Payroll asks whether to deduct tax. The bank asks for Form 145. Someone says that if they're an NRI you don't need to do anything. That is only true for some of them.

What to check before the first salary

Run the checker first. Then:

  1. Confirm it is employment. If they invoice you, set their own hours and work for others, see paying a freelancer abroad and GST reverse charge.
  2. Count where the work happens. Days worked in India are taxable in India, wherever the money goes (section 9).
  3. Settle residence for the tax year (1 April to 31 March). An Indian citizen who leaves India for a job abroad is resident that year only if in India for 182 days or more (section 6). Other cases need the full test.
  4. Pay into an account abroad where you can. Salary for foreign work that is first received in India raises a separate question. See salary credited to an Indian account.
  5. File before each remittance. For a sum that is not taxable in India it is (Form 145 FAQs). Your bank will tell you what it needs with it.
  6. Keep the file: the employment contract naming the work location, a day log and the employee's travel dates.

Does this salary need tax deducted in India?

How do they work for you?

Paying salary to someone abroad this month?

Send the contract and where they live. An ICAI-registered CA partner will set the payroll treatment and the bank forms before the first salary.

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Related situations

When the answer is "deduct as usual"

  • The employee works in India, even for a few weeks, and those days are paid.
  • The employee is resident in India this year. Their salary is then taxable here, and they may claim credit for foreign tax in their own return with Form 44 (formerly ).

Need help with this? Choosing a tax accountant and understanding fees

Related situations

What this page doesn't cover

Payroll tax, social security and registration in the employee's country, and whether their work creates a taxable presence for your company there. Those depend on the other country's law and the treaty. Depends. Talk to a CA, and a local adviser abroad.

Need help with this? Choosing a tax accountant and understanding fees

Related situations

Edge cases that change the answer

  1. Split year. The employee moved mid-year. Count days in India for the whole tax year, not from the joining date.
  2. Visits to India. Working days in India during a visit are paid for work in India. Track them.
  3. No tax anywhere. An Indian citizen who pays no tax in any country can in some cases be treated as resident. Depends. Talk to a CA.
  4. Director, not employee. Directors' fees follow different rules. See the director salary page.
  5. EPF. A foreign-passport employee can be an international worker under EPF. See the EPF page.

Need help with this? Choosing a tax accountant and understanding fees

Related situations

Getting help

How we help

  1. 1

    We check each hire

    An -registered CA partner confirms residence and where the work is done before the first payroll.

  2. 2

    We handle the bank forms

    for each remittance, and salary where it applies.

  3. 3

    We flag the foreign side

    What needs a local adviser in the employee's country, so nothing is assumed.

What to have ready

Documents you may need

Start with just your phone number. We'll explain which documents are needed on the call.

  • The employment contract or offer letter, with the work location
  • The employee's travel dates for this tax year
  • Their country of residence and foreign bank details
  • PAN, if they have one

Sources and references

More answers

Common questions

An NRE account takes money earned abroad, but salary for foreign work received in India raises a question of its own. Pay into their foreign account where you can. Depends. Talk to a CA.

Form 146 goes with Part C, for a taxable sum above ₹5 lakh in the year. A sum that isn't taxable in India is Part D, without Form 146.

No. Services by an employee to the employer in the course of employment are outside GST (CGST Act, Schedule III). A contractor is different.

A penalty of ₹1 lakh can apply under section 462 (formerly 271-I).

The exceptions that change the answer

Where the general rule stops applying to you

Every rule below has a carve-out, a cut-off date or a condition that flips the answer. These are the ones that decide real cases.

Primary residence test: days in India

Right now: 182 days

Where it works differently

The person is an Indian citizen leaving India for employment abroad, or as a crew member of an Indian ship
Only the 182-day test applies. The 60-day secondary test is disabled.
Explanation 1(a) to s.6(1)
Counting days
The day of arrival AND the day of departure both count as days in India.
Settled administrative practice; partial days count as whole days.
The financial year straddles a move
Residence is decided for the WHOLE financial year, not from the date of the move. India has no split-year concept, unlike the UK.
s.6 is a full-year test.

Commonly got wrong

  • You become an NRI the day you leave India. True for FEMA, false for income tax. Under FEMA residence changes on departure with intent; under the Income-tax Act it is a full-year day count.Name which law you mean. Say 'non-resident under FEMA from the day you leave' or 'non-resident for income tax if you are in India under 182 days in that financial year'.
  • India has split-year treatment. It does not. Only the treaty tie-breaker resolves a dual-residence year.Point to Article 4 of the relevant DTAA.

Form 15CB requirement threshold

Right now: Rs 5,00,000 in the financial year, where the remittance is chargeable to tax

Where it works differently

The remittance is not chargeable to tax
Part D of Form 15CA only. No 15CB.
Rule 37BB structure.
The remittance falls in the specified exempt list
No Form 15CA at all.
Rule 37BB(3) specified list.

Commonly got wrong

  • Every outward remittance needs Form 15CB. Only where chargeable to tax and above Rs 5 lakh in the year.Form 15CB is needed only where the remittance is chargeable to tax AND exceeds Rs 5 lakh in the financial year. Otherwise Part D of Form 15CA is enough.

Related

Related guides and tools

Salary earned abroad but credited to an Indian accountPaying a freelancer abroad? Check the tax before you wirePaying yourself a salary from your own company on a foreign passport? EPF's rule for you is still being argued in courtThe same salary taxed twice on an onsite deputation, and how to get it back

Paying salary to someone abroad this month?

Send the contract and where they live. An ICAI-registered CA partner will set the payroll treatment and the bank forms before the first salary.

A practising Chartered Accountant handles your Indian tax work.

We use your number to respond to your enquiry. Privacy policy.

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