Big win for NRI taxpayer:
ITAT Chennai rules US-based individual qualifies as non-resident, no tax in India on overseas earnings
Jan 6, 2026
Synopsis
An NRI successfully challenged the Indian tax department's decision to tax his global income. The Income Tax Appellate Tribunal (ITAT) Chennai ruled that Mr. Dhinakaran qualified as a non-resident, restoring his tax benefits. The tribunal emphasized that holding a managerial position doesn't disqualify one from being considered an employee under tax law, provided a contractual service relationship exists.
On October 31, 2025, the Income Tax Appellate Tribunal (ITAT) Chennai ruled that just because someone holds the title of managing director, it doesn’t mean they aren’t considered an employee. This judgement came against the backdrop of a case filed by Mr.Dhinakaran, who found his global income taxed in India even though he is an NRI.
For those who might not know, only the income earned in India by an NRI can be taxed here, while their global income should be exempt. In Mr. Dhinakaran’s situation, he was taxed as if he were resident of India, missing out on the benefits of Section 6(1) of the Income Tax Act, 1961.
Explanation 1(a) to section 6(1) of the Income Tax Act provides that “an individual who is a citizen of India and who leaves India in any previous year for the purposes of employment outside India shall not be treated as resident unless he stays in India for 182 days or more during that year”. However, the income tax department said that Mr. Dhinakaran held a managerial or controlling position in JCI (USA) and, therefore, should not be considered an “employee” for the purpose of Explanation 1(a).
ITAT Chennai rejected this position taken by the income tax department and said: “The expression “employment” used in the statute does not make any distinction based on designation or seniority. Whether the individual serves in a junior capacity or as a senior executive, what is material is the existence of a contractual relationship of service.”
Summary of the judgement
Chartered Accountant Suresh Surana, said to ET Wealth Online: In the given case (ITAT Nos.1562, 1563, 1591 & 1592/Chny/2025), the taxpayer is an Indian citizen who had left India in 2011 to take up employment with USA based tax-exempt organization incorporated in the United States. For the assessment years (AYs) 2015-16 to 2018-19, he filed his rincome tax returns (ITRs) declaring income in the status of a Non-Resident, disclosing only income accruing or arising in India.
Surana says that following a search under Section 132, the Assessing Officer (AO) treated him as a Resident under Section 6(1)(a) and (c) and consequently taxed his global income, including deposits in foreign bank accounts and credit card expenses incurred abroad.
[The Economic Times]
