Foreign Salary Credited to NRE Account Not Taxable in India: ITAT Ahmedabad Clarifies NRI Taxation Rule
In an important ruling for Non-Resident Indians, the Ahmedabad Bench of the Income Tax Appellate Tribunal has reaffirmed a fundamental principle of international taxation – income is taxed where it accrues, not where it is later deposited.
In its order dated 09 February 2026 in Kaushal Ganpatbhai Patel vs ITO (ITA No. 434/Ahd/2025), the Tribunal held that salary earned for services rendered outside India does not become taxable in India merely because it is credited to the taxpayer’s NRE bank account in India.
The decision offers significant clarity for NRIs who maintain Indian bank accounts for savings, family support, or investments.
Facts of the Case
The assessee, an NRI working in Seychelles, earned salary income of approximately Rs. 44.24 lakh from employment abroad. The salary was directly credited to his NRE account maintained in India.
During assessment proceedings, the tax department sought to tax the income in India under Section 5(2)(a), arguing that since the money was received in India, it should be treated as taxable Indian income.
The assessee contended that the services were rendered outside India and therefore the salary accrued abroad. Credit to an Indian bank account, according to him, was merely a subsequent movement of funds and did not alter the place of accrual.
Key Issue Before the Tribunal
The core question before the Tribunal was simple but important:
Does salary earned abroad become taxable in India merely because it is credited to an NRE account in India?
The answer from the Tribunal was a clear No.
ITAT’s Reasoning: Accrual vs Receipt
The Tribunal emphasised the crucial distinction between accrual of income and application or remittance of income.
It observed that salary accrues where the services are performed. Since the employment was outside India, the income had already accrued abroad at the time it was earned.
Transferring that salary to an NRE account in India was merely the utilisation or application of income already earned. It did not amount to first receipt of income in India in the sense contemplated under Section 5.
Therefore, the credit of salary to an Indian bank account could not shift the taxability from foreign jurisdiction to India.
Reliance on Earlier Judicial Precedent
The Tribunal also relied on an earlier ruling of the ITAT Agra Bench in the case of Arvind Singh Chauhan, where a similar principle was laid down.
That decision clarified that the location of the bank account is irrelevant when determining the place of accrual of salary income. What matters is where the services are rendered.
By following this reasoning, the Ahmedabad Bench reinforced consistency in judicial interpretation on NRI salary taxation.
The Legal Principle Reaffirmed
This ruling reinforces a well-established but often misunderstood tax principle:
• Work performed outside India leads to income accruing outside India
• Foreign accrual remains outside Indian tax net for non-residents
• Mere remittance or deposit in India does not create tax liability
• NRE account credit does not change the source of income
In short:
Foreign employment = foreign accrual = no Indian tax (for qualifying non-residents).
Why This Ruling Is Important for NRIs
Many NRIs maintain Indian bank accounts to support families, repay loans, or invest in India. There has often been uncertainty about whether depositing foreign salary into an Indian account could trigger taxation in India.
This ruling provides comfort that such deposits, by themselves, do not create tax liability.
It also prevents unnecessary disputes arising from a mechanical interpretation of “receipt in India” without examining where the income was actually earned.
Practical Takeaways for Taxpayers and Professionals
This decision highlights several important compliance points:
First, residential status under Section 6 remains the starting point for determining taxability.
Second, documentation proving foreign employment and services performed abroad is essential.
Third, bank credit location alone cannot determine taxability of salary income.
Fourth, maintaining employment contracts, foreign payslips, and tax residency evidence can help avoid litigation.
For professionals advising NRIs, this ruling strengthens the argument that source of income overrides banking location.
Conclusion
The ITAT Ahmedabad ruling serves as a useful reminder that international taxation principles remain rooted in the concept of accrual and source of income.
For NRIs earning salary abroad, the judgment confirms that keeping foreign earnings in Indian NRE accounts does not automatically make them taxable in India.
At a time when cross-border employment is increasing and remittance patterns are Evolving, such judicial clarity is both timely and reassuring.
The copy of the order is as under:
