Income Tax

Foreign Nationals Working in India: How Are Expatriate Employees Taxed?

CA Nikhil Gupta·June 2026·6 min readIncome Tax

A multinational sends an employee on a two-year assignment to its India office, with salary continuing to be paid into a bank account back home. The employee may assume that, since the money never touches an Indian account, it falls outside Indian tax. That assumption is generally wrong: salary for services rendered in India is taxable in India, regardless of where or in which currency it is paid.

Source of Income Trumps Place of Payment

The core rule: Income that accrues or arises in India, or is deemed to accrue or arise in India, is taxable in India regardless of the recipient's residential status. Salary is deemed to accrue in India if it is for services rendered in India, irrespective of where the salary is actually paid or in which country the employment contract is based. So an expatriate physically working in an India office, even if paid entirely into a foreign bank account by a foreign group entity, generally has Indian-source salary income for the days worked in India.

Residential Status Determines the Scope

For a foreign national who is a non-resident for Indian tax purposes (which depends on the number of days spent in India during the relevant year and preceding years, following the same residency tests applicable to anyone), only Indian-source income is taxable in India, meaning the salary attributable to services rendered in India is taxed, but any income from outside India (such as investment income in the home country) generally is not. If the individual's stay in India is long enough to make them a resident (and potentially resident and ordinarily resident), the scope expands to global income, following the same rules that would apply to any other resident.

Apportioning Salary for Days Worked in India

Where an expatriate works partly in India and partly outside during a tax year (common for short-term assignments or frequent travel), the salary needs to be apportioned between the Indian-source portion (attributable to days of service rendered in India) and the portion attributable to services rendered outside India, with only the former generally taxable in India for a non-resident.

Worked Example

DTAA Relief: The Short-Stay Exemption

Many DTAAs include a provision (often called the 'dependent personal services' or short-stay article) under which an employee's salary may be exempt from tax in the host country (India, in this case) if certain conditions are met, broadly: the employee is present in India for fewer than a specified number of days in the relevant period, the salary is paid by or on behalf of an employer who is not a resident of India, and the cost is not borne by a permanent establishment of the employer in India. Where all conditions of the applicable DTAA's short-stay provision are satisfied, the expatriate's salary may be exempt from Indian tax despite the services being rendered in India.

Registration and Compliance Obligations

Foreign nationals working in India typically need a PAN for tax compliance, and employers operating in India are generally required to withhold tax on salary paid to such employees in respect of their India-sourced income, following the normal TDS-on-salary provisions, with the expatriate then filing an Indian tax return to report this income and claim any applicable DTAA relief or foreign tax credit.

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Foreign national on assignment in India, or an India entity hosting one?Indian tax obligations can arise regardless of where salary is paid.

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Frequently Asked Questions

If my home country also taxes the same salary I earn while working in India, can I avoid being taxed twice? ▼

This is precisely what DTAAs are designed to address, either through an exemption in one of the two countries (such as the short-stay exemption discussed above, if conditions are met) or through a foreign tax credit mechanism, where tax paid in one country is credited against the tax liability in the other on the same income, subject to the specific DTAA's provisions and the domestic procedures for claiming such relief.

Does an expatriate need to file an Indian tax return even if all their Indian tax has already been deducted at source by the employer? ▼

Generally, individuals (including foreign nationals) with income taxable in India above the basic exemption threshold, or who meet other conditions requiring a return to be filed, need to file an Indian tax return regardless of TDS already deducted. Filing a return also allows the individual to claim any refund if excess tax was withheld, or to claim DTAA benefits and foreign tax credits as applicable.

How are allowances like housing, schooling for children, and home leave provided to an expatriate taxed in India? ▼

Allowances and benefits-in-kind provided by an employer as part of an expatriate's compensation package, such as accommodation, education allowances for children, or home leave travel, are generally evaluated under the same perquisite taxation rules that apply to any employee, with specific provisions determining the taxable value of accommodation, education benefits and similar items, following the general perquisite valuation framework.

Source and review trail

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Primary category: Income Tax
Official starting point: www.incometax.gov.in
Editorial review date: 2026-07-19
Content status: Finin2min explanation; official source controls where facts, law, rates, forms or procedures can change.

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