Unspent Per Diem is Taxable In India if brought back as cash

Written by Anil Gupta
  By Anil Gupta - Updated on  23 Mar, 19
  161  


What is the meaning of per diem or daily allowance?

Daily allowance or per diem is an amount which is ONLY meant to cover your daily needs of housing, travel and food. Since it is an allowance, it is NOT taxable in the country you are travelling to for short term business assignment.

When you travel abroad for long term assignments (generally greater than 3 months), your company actually deputes you or transfers you to their subsidiary or sister company or parent company as the case may be in that country. In this case, they pay you monthly salary abroad and stop paying you your Indian salary. This salary is then taxable in the respective country as per their income tax laws.

For example,
If you travel to USA for 12 months, then you may receive a yearly package of around $ 60,000 and monthly salary of $5,000. But what your take home salary will be calculated after deducting tax from $5,000.

On the other hand, you might receive $100 per day as a lump sum amount when you travel to USA. When you travel on short term assignments, your company keeps paying you your Indian salary in India and pays the daily allowances (called per diem) abroad in the native currency i.e. USD in our example.
You would receive full $3,000 (30 days * $100) without any income tax deduction.

Unspent per diem is taxable in home country i.e. India?

It is neither taxable in Indian nor abroad if it is fully spent for the purpose it has been given to you. But do remember that any unspent amount, if brought back in your home country makes it eligible for income taxes in your home country!

As per income tax rules, the amount you brought back in India should be considered as your income and added to your Indian income for calculating income tax. if you do NOT do this, it is considered as BLACK money or undeclared income.

Example: Lets assume that you received $100 per day in USA and you saved $40 per day by staying there for 30 days. When you returned back to India, you had cash worth $1200, rest $1600 was spent on your daily needs. Then this amount of $1200 would be taxable in India as per your income tax slab.

Un-spent per-diem allowance is taxable in India
Un-spent per-diem allowance is taxable in India

Please note that your company would normally NOT care about what you did with your daily allowance. They assume that you would have spent the full amount while your were abroad. It is your responsibility to declare the unspent amount (if any) in your Income tax return when you return back to India.

Also, note that while you were abroad and were receiving salary in India, your Indian salary would be taxable as per Indian income tax rules and your company would deduct the TDS as it used to do it when you were in India.

Is monthly salary received abroad taxable in home country i.e. India?

If you received monthly salary abroad, it is taxable as per that country’s income tax laws. So, if you are in USA, you will pay income in USA and not India.

But in case, due to some trivial situation, you have been charged taxes both in India and USA the double taxation treaty may help you. India has a double taxation treaty with USA and some other countries to make sure that you do NOT pay tax twice on the same income.

So, you can get the tax return if you paid taxes on certain income in both USA and India.








   161 Useful Questions & Answers from comments



  1. Aakash
    Aakash 23 Mar, 19 at 12:06 am

    Hi Sir
    Actually I have joined new Org from mid Dec 18, in my last org they were deducting 10% income tax from my salary. But now I am getting my salary from outside India and they are not deducting anything (giving 100% as per the contract), Secondly Perdiem is fixed from the the org side and it is sometimes more than salary. I only travel in India, and we dont have to show bills and anything to claim the perdiem. Travel reimbursement is being paid on the basis of actual bills. How would I calculate my income tax for this quarter?


    • Anil Gupta
      Anil Gupta 23 Mar, 19 at 6:57 am

      Please contact a CA for tax calculation.


  2. KonarkG
    KonarkG 17 Feb, 19 at 3:50 am

    Is it applicable for recent years or it is applicable for long time back ( 2012-2013) financial year. If you get notice how should i respond


    • Anil Gupta
      Anil Gupta 17 Feb, 19 at 12:10 pm

      Income tax on per diem allowance saving and brought back is applicable today also.
      You will get income tax notice only if you converted the savings into white and deposited in bank. That’s the only way Income tax authority can track your income and then match it what you have declared in your ITR.


  3. Arun Prasanth
    Arun Prasanth 14 Jan, 19 at 9:47 am

    Hi Anil,
    Need your clarification,
    I am an business traveler who travel every month abroad to different countries.
    I am getting Indian salary and Per-diem from my company.The problem is my company is deducting tax from my salary based on the per-diem I am getting every month.My company is deducting tax for the entire money I will be getting in a month, my company is not asking for any expenditures that i made out of my per-diem, The perdiem is meant for meal expenditure abroad, my company is deducting the tax even for the money I spent abroad, do you see any mistakes in this system and what will be your suggestion for me to save my tax. Because it seems unfair for me, my whole salary is gone every month as tax adding to this I am paying extra money for the tax every month, so please help me on this!


    • Anil Gupta
      Anil Gupta 14 Jan, 19 at 10:05 am

      Ideally, the business expenses should be borne by your employer and you should not pay tax on it. You should talk to your employer on their policy and why is it done this way.


  4. Avinash Pandey (Avi)
    Avinash Pandey (Avi) 2 Aug, 18 at 1:52 pm

    Hello Anil Sir
    Need your help for the below matter.
    I am working as an IA consultant. I am based out of Mumbai office but working in Middle East at client location.

    **During AY 2018-19, I was out of India for more than 182 days and I am a Non-Resident as per Income Tax Act.**

    I received salary in India. And per diem Kuwait for my stay abroad.(The per diem has accrued to me as well as received outside India.)
    I remitted the unspent per diem every month in my NRE bank account.

    My query is that whether the unspent per diem which I have remitted to India, will it be treated as my income as per Sec 10(14) of the act and would be taxable?

    Thanks in advance for your help.

    Best Regards,
    Avinash


    • Anil Gupta
      Anil Gupta 2 Aug, 18 at 2:59 pm

      Money in NRE account is counted as being already taxed in foreign country as per their laws. You should be good.
      But, i would suggest to consult a CA if the amount is good enough to raise tax inspector’s eye brows.



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