The same salary taxed twice on an onsite deputation, and how to get it back

The double tax comes from two countries having a claim on the same months. A short onsite assignment that runs across, say, February to July sits in two Indian financial years, and in the year it makes you spend enough days in India you can be a resident and ordinarily resident. India then taxes your worldwide income, which includes the salary you earned onsite.

At the same time, the host country taxes that salary because the work was physically done there, and your host payroll or the local entity withholds on it. Neither country is wrong. The result is that the one salary carries Indian tax and host-country tax at the same time. That is the problem to unwind, and it is a timing-and-credit problem, not a sign that someone taxed you illegally.

Most people first ask whether the treaty stops the host country taxing them at all. It can, but only in a narrow case. The short-stay rule in the dependent personal services article exempts the host tax only if three conditions hold together: you were in the host country for 183 days or less in the relevant period, your pay was borne by an employer who is not a resident of that host country, and it was not borne by a permanent establishment of the employer there.

A genuine deputation usually fails at least one. Assignments often run past 183 days once the straddle is counted, or the host entity pays or bears the cost of your salary, which breaks the second and third conditions. So the exemption drops away and the host country keeps its tax. The article is Article 15 in the OECD Model but is numbered differently in each treaty, so do not assume a number; what matters is that the conditions are conjunctive and a real deputation rarely meets all of them.

Once the host country is entitled to tax the salary, double taxation is relieved by a credit, not by making one side disappear. India, as your country of residence for the year, gives credit for the host tax against the Indian tax on the same income.

In practice this means filing ITR-2 and reporting the foreign salary in the foreign-source-income schedule, the foreign tax paid in the tax-relief schedule, and, once you are ordinarily resident, the foreign assets in Schedule FA. You file Form 67 to claim the credit, and the credit is the lower of the Indian tax and the host tax on that income, so you broadly pay the higher of the two, not the sum. Form 67 can be filed up to the end of the assessment year, provided the return itself was on time. Under the Income-tax Act 2025 the mechanics carry over: the credit rule remains, Form 67 becomes Form 44 (with a CA certificate where the foreign tax is 1 lakh rupees or more), and the treaty-relief section moves from Section 90 to Section 159.

Priya was deputed to Sydney from February to July on a project. Her Indian employer kept part of her pay on the Indian payroll and deducted TDS on it, while the Australian entity paid the Australia portion and withheld Australian tax. Because her days pushed her into resident-and-ordinarily-resident status for the Indian year, India taxes her full salary, including the Australia months, so that slice is taxed in both countries.

The treaty short-stay exemption does not rescue her: her stay and the local cost-bearing break its conditions. So her CA files ITR-2, reports the Australian salary and the Australian tax in the foreign-income and tax-relief schedules, files Form 67, and claims the credit for the Australian tax against the Indian tax on that salary. The excess Indian TDS comes back as a refund, and Priya pays, in total, the higher of the two countries' tax on that income rather than both.

Some deputations come with a tax-equalisation policy, and it changes what the payslip shows versus what your return must report. Under it, the deal is that you bear only a notional home-country tax, a hypothetical tax the employer keeps back from your pay, while the employer pays the actual Indian and host-country tax on the assignment income. It is meant to leave you tax-neutral, so a high-tax posting does not cost you and a low-tax one does not enrich you.

The part that surprises people on the Indian return is that tax your employer pays on your behalf is itself a taxable perquisite in your hands, so it is added back to your salary and, because that addition attracts more tax, grossed up. That grossing up happens only once: the tax on that tax is itself exempt in your hands under Section 10(10CC), so it does not cascade. The hypothetical tax the employer withheld is only a book entry between you and the company; Indian law does not recognise it as a deduction, so you cannot use it to reduce your taxable salary. What you can do is treat the Indian and host taxes the employer actually paid as taxes paid for you, and claim a foreign tax credit for the host tax through Form 67. Filing on the net figure the payslip shows, rather than the grossed-up salary with the credit, is the common mistake, and it usually leaves the return wrong in both directions.