When a Salary Earned in India Becomes Non-Taxable — Section 10(2B)

Imagine moving to India for a short, high-profile assignment. Everything goes as planned. You help a global company set up operations, run projects, close deals. Salary lands in your account. Taxes, you assume, will apply like any other job in India. Then comes the twist — not all foreign income earned in India is taxable in India. And this is where Section 10(2B) walks in.

Most taxpayers have never heard of it. Some chartered accountants rarely see it in practice. But for foreign enterprises & their employees working temporarily in India, this section acts like a legal shield — protecting certain income from Indian tax.

What Is Section 10(2B) in Simple Words?

At its core, Section 10(2B) says:

If an employee works in India on behalf of a foreign enterprise, and under specific conditions, then:

• The remuneration received by an employee of a foreign enterprise for services rendered in India may be exempt in India, and
• Any other income which accrues or arises to him or it outside India also stays outside Indian taxation."

Additionally (in certain limited cases tracked historically through interpretations of sub-clause exemptions):

• There may be tax exemption on capital gains from the compulsory acquisition of urban agricultural land for certain qualifying entities.

In short — India taxes income earned in India, but this section creates a protected window for international professionals working here temporarily under structured foreign arrangements.

Why Was This Section Created?

Not for freelancers.
Not for Indian employees working in Indian branches of foreign companies.
Not for NRIs automatically.

This was introduced because India wanted to:

• Encourage international expertise to temporarily operate in India
• Avoid double taxation on foreign enterprise employees
• Keep global mobility smooth for short-term assignments, technical roles, & cross-border project deployments
• Provide confidence to foreign entities that sending employees to India won’t always expose them to Indian tax

It also aligns with India’s larger intent to appear tax-fair under global economic cooperation frameworks.

Also Read: Section 10(12A): The Tax-Free Exit Door for NPS Withdrawals

Who Can Claim This Tax Exemption?

Not everyone.

To qualify, the person must check all key boxes:

✅ 1. Must be an employee of a foreign enterprise

Not an Indian payroll employee. Not a contractor. Not a freelancer.

✅ 2. The foreign enterprise must not be engaged in business in India

If the company already has an Indian business presence (PE — Permanent Establishment), exemption gets tricky.

✅ 3. The income should either:

• Be remuneration for services rendered in India, or
• Be any other income which accrues or arises outside India

✅ 4. The stay in India is typically short-term or assignment-based, not indefinite employment.

If any of these collapse, the exemption may collapse too.

What Types of Income Qualify?

Here’s a quick break-up:

Classic Example to Understand Section 10(2B)

Let’s say:

John works for a Singapore-based company.
The company sends him to India for 5 months to help deploy a technical system."
His salary continues to be paid in Singapore, by the Singapore entity, into his foreign bank.
His company has no office, no business setup, & no permanent establishment in India.

✔ His remuneration falls under remuneration received by an employee of a foreign enterprise for services rendered in India
✔ Eligible to claim Section 10(2B) exemption
✔ India cannot tax his salary for that assignment

Now change one variable:

John is paid by the Indian subsidiary of that same company.

❌ He loses 10(2B) protection
❌ Income becomes taxable in India

That’s the difference a payroll structure makes.

Also Read: The Tax Exemption That Keeps Religious and Charitable Boards Free from Tax Burden

Another Scenario: Income Outside India

Maria is employed by a company in Spain.
She arrives in India to manage a 3-month internal audit.
During the same period, she earns rental income from a property she owns in Spain.

Under Section 10(2B):

✔ Her Spanish rental income = tax protected in India (since it didn't arise in India)
✔ Her salary might also be exempt if qualifying conditions are met

Because the section covers any other income which accrues or arises to him or it outside India.

Common Misunderstandings (That Even Professionals Make)

Risks If Claimed Incorrectly

This exemption is often questioned during assessments because:

• The employer-employee relationship isn’t well documented
• The foreign entity is found to have business connections in India
• Payroll or reimbursement trail looks India-linked
• Assignment duration starts resembling regular employment
• No structured agreement exists between foreign entity & Indian operations

If disallowed, tax applies retrospectively with interest and possible penalties.

Documentation Checklist to Safeguard the Claim

If someone is planning to rely on Section 10(2B), the file must look strong. Include:

• Foreign employment contract
• Assignment letter specifying India deployment
• Proof that salary is paid by foreign enterprise, not Indian entity
• Bank statements showing non-Indian salary credit
• Declaration that foreign enterprise has no PE in India
• Residency & travel records (passport stamps / Form 12BA if applicable)
• Tax residency certificate if applicable (for treaty support)
• Project scope proving temporary assignment, not India-based employment

A weak file makes a valid exemption fail.

Interaction with DTAA (Double Tax Avoidance Agreements)

Even though 10(2B) gives domestic exemption, most foreign employees also check:

• Whether India has a DTAA with their home country
• Whether salary is taxed in home country
• Whether 183-day rule or Employer-PE rule under DTAA gives added protection

Often, Section 10(2B) DTAA together provide the strongest tax defense.

Also Read: The Rule That Redefines How You Calculate the True Cost of an Asset

What This Section Is Not

It is not a tax holiday for:

• Foreign consultants billing clients in India"
• NRIs working remotely for Indian companies
• Foreign directors earning India-sourced sitting fees
• Foreign employees on Indian payroll
• Expats posted to India long-term

Those fall under entirely different tax provisions.

Final Thought — Why This Section Still Matters

India wants foreign capital, foreign intelligence, foreign skill, and global collaboration.

But it also knows:

Tax friction blocks movement faster than visas do.

Section 10(2B) silently fixes that friction for a very specific audience — foreign enterprise employees on temporary Indian assignment, & foreign income streams that never truly belong to India in the first place. If structured correctly, it becomes one of the cleanest tax planning tools in international employment mobility.

Want to structure your foreign assignment or cross-border income the right way, without triggering tax notice years later?

Our tax team handles international employee taxation, DTAA, payroll structuring & Section 10 exemptions at scale. Check out how we simplify it at CallMyCA.com — the smarter way to manage global tax compliance.