Working Remotely Across Borders: Where Your Salary Is Actually Taxed When You or Your Employer Sits in India

A reader in Toronto messaged me last month, genuinely panicked. He had taken a fully remote role with a Bengaluru startup, the offer letter quoted everything in rupees, and his Canadian accountant had told him he might owe tax in both countries on the same salary. He was already mentally writing off a third of his pay. He owed nothing extra. His salary was Canadian-taxed only, the rupee figure was a quirk of the employer's payroll, and the one thing he had to fix was where the money landed. The reverse case is more common now: an engineer moving back to Pune but keeping her Berlin employer, assuming her German salary stays German-taxed forever. For the first year or two she is right. After that she is very wrong, and nobody warns her in time.

The 30-second answer: Salary is taxed where the work is physically done, not where the employer sits. Under Section 9(1)(ii), an NRI doing all the work abroad for an Indian employer earns income that does not accrue in India, so it is not taxable here, with one trap: under Section 5(2), salary first received in India can be taxed in India, so have it paid abroad or to an NRE account. The reverse, a returning Indian working remotely for a foreign employer, is tax-free in India only while you are non-resident or RNOR; once you are Ordinarily Resident your global salary is fully taxable. Days you work from Indian soil are Indian-source even in RNOR. India has no totalisation agreement with the US, so US contributions cannot be offset.

This guide assumes you already understand residency status and NRE versus NRO accounts; if not, read the residency and RNOR guide and the accounts guide first. What follows is the part that actually decides your tax bill: the source rule that most people get backwards, the receipt trap that turns a tax-free salary into a taxable one, the permanent establishment risk that can quietly end your remote arrangement, and the social security gap that has no clean fix for the US.

The source rule, and why your employer's nationality is almost irrelevant

Start with the principle that controls everything and that people consistently get wrong. Indian income tax does not care who your employer is. It cares where you sat when you did the work. Salary is taxed at the situs of the services, the place where the employment is exercised, and this has been settled law for decades, codified in Section 9(1)(ii), which deems salary to accrue in India only to the extent it is earned in India, meaning for services rendered in India.

So an NRI living in Dubai who logs into a Bengaluru company's systems every day and does all the work from a desk in Dubai is earning income that does not accrue in India. The employer being Indian, the salary being denominated in rupees, the appraisal cycle running on the Indian financial year, none of it matters. The work happened in the UAE, so under the source rule the salary is UAE-source from India's point of view, and since the person is a non-resident, India has no claim on it on the accrual basis.

There is one statutory exception worth naming so you do not trip over it. Section 9(1)(iii) deems salary paid by the Government of India to an Indian citizen for services rendered abroad to accrue in India regardless of where the work is done. A diplomat or a government officer posted overseas is taxed in India on that salary. This is a narrow carve-out for government employees and does not touch the private-sector remote worker, but it is the kind of detail people half-remember and then wrongly apply to themselves.

The receipt trap that quietly makes a tax-free salary taxable

Here is where the genuinely expensive mistake lives, and it is the part that the Toronto reader almost got caught by. Indian tax has two independent triggers, not one. Section 5(2) taxes a non-resident on income that accrues in India and, separately, on income that is received in India. Accrual is about where the work happened. Receipt is about where the money first landed in your control. These are different questions, and either one alone can pull the salary into the Indian net.

The phrase the courts care about is first receipt. Receipt for tax purposes is the first occasion the money comes into your own control, real or constructive. If your Indian employer pays the salary into a resident savings account, or even an NRO account, that you hold in India, the department can argue the first receipt happened on Indian soil, and that the salary is therefore taxable in India under Section 5(2) even though the work was done abroad and the salary never accrued here. You would have converted a clean, non-taxable foreign-rendered salary into a taxable one purely through plumbing.

The case law is not uniform, and that is precisely why you should not rely on winning the argument. Tribunals have held both ways. The Bombay and other benches have repeatedly held that where salary accrues abroad and is merely remitted to an Indian account afterwards, that later credit is not a "first receipt" in India and is not taxable, drawing the careful distinction that the salary amount was received in India but the salary income was received outside India. But the Kolkata ITAT in the Tapas Kumar Bandopadhyay matter held foreign salary taxable in India precisely because it was received here. The honest position is that the outcome turns on the facts and on which bench hears you, so the sensible move is to never create the question.

In practice that means one rule. Have the salary paid into an overseas account in your country of residence, which is the cleanest possible answer, or if it must come to India, into an NRE account, never a resident savings account and ideally not an NRO account either. Put the contract, the work-location clause, the immigration record showing you were abroad, and the bank narration on file. If the structure ever gets questioned, that file is what wins.

Put real numbers on what is at stake. Take an NRI in Dubai earning the rupee equivalent of Rs 60,00,000 a year from an Indian employer, doing all the work from Dubai. Done correctly, with the salary paid to a UAE account or an NRE account and the services demonstrably rendered abroad, the Indian tax is nil, because the UAE levies no personal income tax and India has no claim. Done carelessly, with the salary credited to a resident savings account and a sloppy paper trail, the department could assess the whole Rs 60,00,000 as received in India. At the slab rates an NRI faces, the tax on that, before cess, runs to roughly Rs 15,00,000 to Rs 16,00,000. That is the entire cost of the difference between an NRE account and a resident account. The work was identical; only the plumbing changed.

Permanent establishment: the risk that is your employer's, until it becomes yours

Now flip the direction. You are a returning Indian, or an NRI who never left and works for a foreign company. The salary question we will get to, but first the one that can quietly end the whole arrangement, and that almost no employee thinks about: permanent establishment.

A foreign company has no obligation to pay Indian corporate tax on its global profits unless it has a taxable presence in India, a permanent establishment (PE). The fear, real and increasingly litigated, is that you working from your flat in Pune becomes that taxable presence. If it does, the foreign employer can be assessed in India on the profits attributable to its Indian activity, has to register, file and comply here, and the cost and hassle of that frequently leads the company to simply stop allowing the remote arrangement. So this is your employer's tax problem, but it is your job security problem.

Three forms of PE are relevant. Fixed-place PE arises when the company carries on business through a fixed place at its disposal, and the worry is that your home office is treated as a place of business of the foreign company. Dependent-agent PE (DAPE) arises when a person in India habitually exercises authority to conclude contracts, or habitually plays the principal role leading to the conclusion of contracts, on the company's behalf. Service PE arises under many Indian treaties when the company furnishes services in India through personnel beyond a day threshold, commonly 90 days in a twelve-month period for unrelated parties, far shorter for associated enterprises.

The reassuring development is the 2025 OECD commentary update on the home-office question, which Indian authorities and treaty interpretation increasingly track. The working position is that a home office used for less than 50% of an employee's working time, where the presence is driven by the employee's personal choice rather than the employer's business need, generally does not put a fixed place at the company's disposal and so does not create a PE. Cross that 50% line, or have the presence be business-driven, for instance because you are there to serve the company's Indian clients, and the risk rises sharply. There was also a useful Delhi High Court ruling in late 2025 in the Clifford Chance matter confirming that physical presence is a precondition for a service PE under the India-Singapore treaty and that purely virtual or digital service delivery does not by itself create one, which helps the pure backend remote worker.

The practical reading by role is the part worth internalising. A backend engineer, data analyst or content writer who does internal work, signs nothing on the company's behalf and serves no Indian customer is low risk; their home office is lifestyle-driven and under the threshold of concern. A senior salesperson, a country head, or anyone negotiating and closing deals from Indian soil is high risk, because they look exactly like a dependent agent concluding contracts, and the 50% safe harbour does not save business-driven presence. If you are in the second category, do not be surprised when the foreign employer asks you to route through an Employer of Record (EOR). An EOR becomes your legal employer in India, takes on the local payroll, withholding and compliance, and crucially insulates the foreign company from the PE argument, which is why it has become the default structure for hiring remote workers in India.

When you return: the RNOR window is the whole game

For the returning Indian keeping a foreign employer, the single fact that decides your Indian tax is your residential status in each year, and it changes as you settle back in. Walk it forward.

In the year you are still a non-resident, foreign salary for work done abroad is untouched by India, exactly as before. In the years you qualify as RNOR (Resident but Not Ordinarily Resident), the prize is that India still taxes you only on Indian-source income, and foreign salary for services rendered outside India stays outside the net even if credited to an Indian account. The RNOR window typically runs up to two to three financial years after return, depending on how your past non-residence stacks up against the conditions: broadly, you qualify as RNOR if you were a non-resident in nine of the preceding ten financial years, or your stay in India in the preceding seven years totalled 729 days or less. This window is the single most valuable tax asset a returning NRI has, and the RNOR guide covers how to count it precisely.

The moment that window closes and you become an Ordinarily Resident, the regime flips entirely. India now taxes your global income, foreign salary fully included, wherever it is paid and whatever account it touches. There is no remittance shelter, no NRE-account trick at this stage, because the exemption that protected the foreign salary was about your status, not your plumbing. From that year your Berlin or London salary is Indian-taxable in full, you claim a foreign tax credit for what the other country took, and you reconcile the two under the treaty.

Here is the trap that catches careful people, and it operates even inside the protected RNOR window. The RNOR exemption protects foreign salary only for services rendered outside India. Once you are physically back in Pune and you keep doing the foreign employer's work from Indian soil, those days of work are services rendered in India under Section 9(1)(ii). That slice of the salary is now Indian-source income and taxable in India even during RNOR, because RNOR only shelters foreign-source income, and salary for work done in India is not foreign-source, it is Indian-source by definition. People assume "RNOR means my foreign salary is safe" and forget that the day they sit down to work in India, the source of that day's salary moves to India.

Put numbers on the returning case. Priya moves back to Pune in June 2026 and keeps her German employer, earning the equivalent of Rs 90,00,000 a year, paid in euros to a German account. She qualifies as RNOR for FY 2026-27 and FY 2027-28. Suppose for FY 2026-27 she worked from Germany for the part of the year before she moved and from Pune after. The portion attributable to her work done in Germany is foreign-source and, as RNOR, not taxable in India. The portion attributable to her work done from Pune, say roughly Rs 67,00,000 covering the nine months she worked from India, is Indian-source, taxable in India from the first rupee, and at slab rates costs her on the order of Rs 18,00,000 to Rs 19,00,000 before relief. Germany may also tax it; she breaks the double tax by claiming a foreign tax credit via Form 67 and applying the DTAA.

Now the counterfactual that shows how much the source split matters. Had Priya negotiated to stay physically in Germany until April 2027 and then move, the entire FY 2026-27 salary would have been for services rendered outside India, fully RNOR-exempt, and her India tax for that year would have been nil instead of nearly Rs 19,00,000. The difference was not a clever structure; it was the calendar. Where you physically sit when you work is the most powerful tax lever a remote worker has, and almost nobody plans the move date around it.

Article 15 and the 183-day rule: how the treaty decides ties

When two countries both have a colourable claim, the treaty's employment article, Article 15 (Dependent Personal Services) in most of India's treaties, allocates the right to tax. The default is that salary is taxable only in your country of residence, unless the employment is exercised in the other country, in which case the other country may also tax the part earned there.

The famous exception is the 183-day rule, and remote workers misread it constantly. Even where you exercise the employment in the other state, that other state cannot tax the salary if all three of these hold: you are present there for 183 days or fewer in the relevant period; the remuneration is paid by, or on behalf of, an employer who is not a resident of that other state; and the remuneration is not borne by a permanent establishment the employer has in that state. The point people miss is that all three conditions must be satisfied together. The 183-day count alone does not protect you. If your salary is paid by an employer resident in the country where you are working, the first exception fails and that country can tax from day one, which is exactly why short business trips to your employer's country can create a filing obligation that a tourist would never face.

For a fully remote NRI with an Indian employer, sitting permanently abroad, Article 15 simply confirms the source rule: you are resident abroad, you exercise the employment abroad, so the salary is taxable only abroad. The treaty does not give India a second bite. For the returning Indian who becomes Ordinarily Resident, Article 15 read with the treaty lets India tax the global salary while obliging it to give credit for tax the foreign country properly levied, and the credit mechanics run through Form 67.

Social security: the totalisation gap with no clean fix for the US

Income tax is only half the cross-border cost. Social security is the half that surprises people, and the answer is brutally country-specific because it depends on whether India has a Social Security Agreement (SSA), also called a totalisation agreement, with the other country.

India has operational SSAs with around eighteen countries, including Canada, Germany, France, the Netherlands, Belgium, Switzerland, Japan, South Korea and Australia, among the European and developed economies most relevant to NRIs. Where an SSA exists, the principle is that you contribute to one system, not both, and you get a Certificate of Coverage from your home system that exempts you from the host country's contributions, with periods of contribution in the two countries totalised so you do not lose pension rights by splitting a career across borders. For an Indian moving to or from Germany or Canada, this is clean: secure the certificate, contribute in one place, carry your record across.

The painful gap is the United States, with which India has no totalisation agreement, and the UAE, which has no social security system that bites a foreign employee in the relevant way. The US gap is the one that costs real money. A person caught in the US system has no way to obtain a certificate exempting them from US Social Security and Medicare, and depending on the structure may also face Indian EPF obligations if employed through an Indian entity, with no totalisation to relieve the overlap. India has been pushing for a US SSA for years, and as of mid-2026 it still does not exist, so honestly, there is no clean fix; you optimise the structure and accept the rest. The UAE side is simpler for the salaried expat, who typically pays no social security there at all, which is part of why the Gulf is so tax-efficient for an NRI working for either an Indian or a foreign employer.

The structural point for someone choosing how to be engaged: if you are a returning Indian working for a US employer and you can be engaged as an independent contractor billing from India rather than a US-payrolled employee, you may sidestep US Social Security and Medicare withholding, though you then carry Indian tax and possibly self-employment-style exposure, and you lose employee protections. There is no universally right answer; it is a genuine trade-off that depends on amounts and on how aggressive the US side is about classification.

Edge cases

The split-payroll arrangement. Some Indian employers of NRIs run a split, paying part of the salary in India and part abroad. The Indian-paid portion is the dangerous one, because it sits squarely in the first-receipt zone under Section 5(2). If your work is wholly abroad, push for the entire salary to be paid abroad or to an NRE account, and treat any India-paid component as taxable unless you have a clean argument otherwise.

The deemed-resident rule for zero-tax-jurisdiction NRIs. From April 1, 2026, under the new Income Tax Act, 2025, an Indian citizen earning Rs 15 lakh or more from Indian sources who is not liable to tax in any other country can be treated as a deemed resident of India even with zero days here. This targets NRIs in the UAE and similar no-tax jurisdictions. It is RNOR-style taxation, so it generally does not reach genuinely foreign-source salary, but it changes the analysis for someone with significant Indian-source income who pays no tax anywhere, and it is new enough that the precise contours are still being tested.

The 120-day high-income trigger. Also from April 1, 2026, an NRI with Rs 15 lakh or more of Indian-source income becomes RNOR if present in India for 120 days or more in a year, down from the old 60-day-plus-365 secondary test threshold and well below the 182-day primary test. If you fly home a lot and have meaningful Indian income, count your days carefully, because crossing 120 now flips you to RNOR and brings any India-rendered work into the net sooner than the old rules did.

FEMA account redesignation on return. This is not income tax, but it bites returning Indians who forget. On return, FEMA requires you to redesignate NRE and NRO accounts to resident accounts, or move funds to an RFC (Resident Foreign Currency) account, reasonably promptly once your status changes. The income-tax exemption on RFC interest tracks your RNOR status. Failing to redesignate is a FEMA contravention separate from any tax question, and it is the kind of housekeeping that gets missed in the chaos of moving. The accounts guide and the returning checklist cover the mechanics.

Where the law is genuinely unsettled. Two areas deserve honest hedging. First, the receipt-versus-accrual question on salary credited to Indian accounts has gone both ways in the tribunals, so it is not a settled win, only a strong position if structured and documented well. Second, the application of the OECD home-office PE commentary to Indian facts is still developing; the 50% personal-choice safe harbour is the working consensus, not a statutory rule, and a sufficiently aggressive assessing officer can still raise the argument. On both, the right move is to structure conservatively rather than to assume you will prevail in litigation.

The honest read

The honest read is that for a remote worker, geography is tax policy. The single most powerful lever you have is where you physically sit when you do the work, and almost everything else is secondary.

For an NRI working remotely for an Indian employer, my committed recommendation is simple: do all the work from abroad, have the salary paid to an account in your country of residence or to an NRE account, never to a resident savings account, and keep the contract, immigration record and bank narration on file. Do that and your Indian tax on that salary is nil on a correct reading, and you have pre-built the defence if it is ever questioned. The Indian-ness of the employer is a red herring; the only thing that can hurt you is sloppy plumbing creating a first receipt in India.

For a returning Indian keeping a foreign employer, the recommendation is to treat the RNOR window as the scarce asset it is and to plan the move date around the calendar, not around when the boxes arrive. If you can finish a chunk of work physically abroad before you land, that work stays foreign-source and, in RNOR, untaxed in India, which as Priya's case showed can be the difference between nil and nearly Rs 19,00,000 in a single year. Once you are Ordinarily Resident, accept that your global salary is fully Indian-taxable, lean on Form 67 and the treaty to kill the double tax, and stop looking for a remittance shelter that no longer exists. And if you are a senior, deal-closing employee, expect the PE conversation and an EOR structure, because your foreign employer is right to be cautious.

The exception to all of this is the person with large Indian-source income who pays no tax abroad, the UAE high earner above the Rs 15 lakh Indian-income line, who from April 2026 has to watch the deemed-resident and 120-day rules carefully and should take real advice rather than rely on the old day counts. For everyone else, the rules are more generous than the panic suggests, provided you get the structure right before the money moves, not after.

Related guides

• Moving abroad: the financial checklist
• Relocating back to India: the checklist
• NRI residency and RNOR rules
• DTAA relief for NRIs
• Foreign tax credit and Form 67
• NRE, NRO and FCNR accounts explained
• All Jobs guides
• All Taxation guides
• All Banking guides

This guide is educational and general in nature. It is not individual tax advice. Cross-border salary outcomes depend on your exact residential status, the country involved, where the work is physically done, your treaty, and several rules that change under the Income Tax Act, 2025 from April 1, 2026, so confirm your specific position with a qualified chartered accountant and, where the other country is involved, a local adviser before you act.