Rs 17.25 lakh income of an employee was added as taxable salary despite working in UK;
ITAT Delhi gives him relief under India-UK DTAA
Jun 23, 2026
Synopsis
The Income Tax Appellate Tribunal (ITAT) Delhi has ruled that even if a non-resident salaried individual has received any ‘per-diem’ payments from his Indian employer due to his overseas work, then this payment is not taxable under Article 16 of India-UK Double Tax Avoidance Treaty (DTAA).
The Income Tax Appellate Tribunal (ITAT) Delhi has ruled that if a non-resident salaried individual gets any 'per-diem' payments from their Indian employer while working abroad, those payments are not taxable under Article 16 of India-UK Double Tax Avoidance Treaty (DTAA).
This ruling was given in a case involving a guy from Bommenahalli, Bengaluru, who had been sent by his Indian employer to work in the United Kingdom (UK), making him an NRI for the duration of his assignment there.
While working in the UK, he also received per diem payments from his Indian employer for that time and claimed benefits under the India-UK DTAA, paying no tax in India on those per-diem payments. However, the Indian Income Tax Department argued that these payments should be taxed under Section 5(2) because they were paid by his Indian employer.
Per diem is the Latin term for "per day" and refers to specific amounts provided by an employer to the employee to cover their living expenses and incidental costs while working outside their home base. In this case, the employee's home base was Bengaluru but he was sent to work in the UK on an assignment.
To give you a background, this Indian employee is employed with an MNC's Indian branch and was assigned to the United Kingdom to work with the MNC's UK branch from April 1, 2016 to March 31, 2017.
Since he stayed in India for less than 60 days during FY 2016-17, he qualified as a non-resident in India for AY 2017-18. His passport also showed this same period of stay thus proving and confirming his NRI status. Plus, he also had an UK tax residency certificate (TRC) issued for the period April 6, 2016 to April 5, 2017 by Her Majesty's Revenue and Customs.
To cover his UK stay, the MNC's India branch provided him with a total of Rs 16.17 lakh as per-diem payment. This sum was given to him due to his assignment with the MNC's UK branch.
For his time in the UK, he submitted his UK tax return in FY 2016-17, displaying a taxable employment income of GBP 12,151.
On July 23, 2017, he filed his income tax return (ITR) in India by declaring an income of Rs 23.94 lakh from salary and house property. But later, he filed a revised ITR showing a loss of Rs 1.63 lakh and sought a tax refund.
This caught the attention of the Income Tax Officer (AO), who issued him a tax notice along with three questionnaires on December 4, December 14 and 19 of 2019, in which he was specifically asked to furnish details regarding the large refund claim and to explain why he showed Nil income in a revised ITR along with supporting documents and evidences.
He replied to the AO via email that he was sent on an international assignment to the UK and was employed in the UK for the relevant year and thus he claimed India tax exemption under Article 16 of India-UK DTAA for Rs 27.1 lakh income and the balance salary income of Rs 35,506 was offered to tax in India via his revised ITR.
Thereafter, a notice was issued to him by the Income Tax Department on December 19, 2019, asking him to explain the reasons for the difference in revised ITR in India and income shown in the UK and why the difference shouldn't be added back to his income.
He went over the details of his case with the AO but the assessing officer didn't find his response satisfactory.
During the assessment, the tax officer saw that he had submitted a copy of the UK ITR for AY 2017-18, in which income from salary was 12151 (GBP), which when converted in INR came to Rs 9,84,231 (1 GBP= Rs 81). In his original ITR, he had shown income from salary as Rs 27.45 lakh but in revised ITR, the income from salary shown as Rs 35,506.
As a result, his submissions were rejected and Rs 17.25 lakh [ Rs. 27,45,669- (9,84,231+35,506)] was disallowed and added back to the total income and sought to be taxed in India.
The AO wrote in his rejection order that his submission was not found acceptable/tenable in the light of Section 5(2)(a) of the Income Tax Act, 1961 which discusses about scope of total income:
"Section 5(2): Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever sources derived which - 1. is received or deemed to be received in India in such year by or on behalf of such person."
Feeling aggrieved, he filed an appeal with the Commissioner of Appeals (CIT (A) who said that all the facts are against his claim that he had offered the total income as received in India in UK tax return.
CIT (A) said that even if his claim is assumed to be correct that the total income of Rs 27.67 lakh received by him in India includes the per diem of Rs 16.17 lakh which are exempt in UK, he should have claimed such exemption or made mention of that in the UK tax return, as per diem payments are not automatically exempted from taxation.
CIT (A) said that taxability of per-diem depends on what the payment is for and how it's handled and so he had to declare the payment received against per-diem in UK tax return and subsequently claim the eligible amount as exempt.
On this ground, CIT (A) rejected his per diem payments claim and upheld the AO's order. Unhappy with the ruling, he filed an appeal in ITAT Delhi. On May 29, 2026 he won the case in ITAT Delhi. Advocate Ms. Preeti Goel represented him in ITAT Delhi.
Chartered Accountant Prashant Thacker, partner, Thacker & Associates told ET Wealth Online that the moot question before ITAT Delhi was whether per-diem payments, received by non-resident employees through an Indian payroll for services rendered in the UK , could be subjected to tax in India.
Thacker says that referring to Article 16(1) of the India-UK DTAA, the ITAT Delhi held that since the employee was a tax resident of the UK and performed services in the UK, he was entitled to the protection of Article 16 of the India-UK DTAA and accordingly gave him relief by holding such per-diem arising from the UK assignment could not be taxed in India.
Mihir Tanna, associate director, S.K Patodia LLP says that it is a settled position that salary earned for employment outside India cannot be taxed in India if DTAA provides relief and other prescribed conditions are fulfilled.
Tanna further says that exemption of salary income in India is Independent of and unrelated to taxability of the salary income in foreign country as per domestic tax laws of said foreign country.
Tnna says: "However, there are two common instances wherein inquiry can be initiated by the income tax department. Firstly in cases where there is substantial difference in income offered in original return and revised return and second wherein substantial benefit is taken as per DTAA."
ITAT Delhi order and discussion
ITAT Delhi said that as per Article 16(1) of India UK DTAA and Section 90 of the Income Tax Act, 1961 the amount of Rs 16.17 lakh being received on account of per-diem if at all will be taxable in UK and not in India. Therefore, ITAT held that the amount of Rs 16.17 lakh will not be taxable in India.
Further, ITAT Delhi also said that since Rs 16.17 lakh was claimed as non-taxable income in India due to per-diem payments for UK work, and the balance salary of Rs 35,506 has been offered to tax in India and the amount of Rs 64,577 has been claimed to be non-taxable in UK on account of bonus for (non UK working days), therefore, the tax notice is deleted.
Thus ITAT Delhi deleted the addition of Rs 17.25 lakh income to his ITR and allowed his appeal. The order was pronounced in open court on May 29, 2026.
What is the significance of this judgement for other NRI employees
Thacker says that as businesses continue to expand globally, it has become increasingly common for companies to assign employees to overseas locations on secondment or deputation. However, international assignments can give rise to various tax implications and one such issue relates to the tax treatment of per diem allowances.
Thus Thacker advises that employees who have undertaken overseas assignments should carefully evaluate their residential status, the applicable tax treaty (DTAA) and the location where employment services were actually rendered before reporting salary income in India.
According to Thacker, merely because remuneration is paid through an Indian payroll (or reflected in Form 16), that does not automatically determine its taxability in India.
Thacker says: "The employees should also maintain adequate documentation such as deputation/assignment letters, tax residency certificates (TRCs), passport records, overseas tax filings, payroll reconciliation and employer certifications to substantiate their claims under a tax treaty (DTAA)."
Article 16 of India-UK DTAA
ITAT Delhi reproduced Article 16 of India UK Double Taxation Avoidance Agreement (DTAA) regarding the taxability of salary:
ARTICLE 16: Dependent personal services
1. Subject to the provisions of Article 17 (Directors' fees), 18 (Artistes and athletes), 19 (Governmental remuneration and pensions), 20 (Pensions and annuities), 21 (Students and trainees) and 22 (Teachers) of this Convention, 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 of this Article, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall not be taxed in that other State if : (a) he is present in the other State for a period or periods not exceeding in the aggregate 183 days during the relevant fiscal year; (b) the remuneration is paid by, or on behalf of, an employer who is not resident of that other State; and (c) the remuneration is not deductible in computing the profits of an enterprise chargeable to tax in that other State.
[The Economic Times]
