The ITAT held that cost-to-cost salary reimbursement for seconded expatriate employees, without markup, does not constitute Fees for Technical Services (FTS) and is not taxable in India.
ITAT Rules Cost-to-Cost Salary Reimbursement Not Taxable as FTS
The Income Tax Appellate Tribunal (ITAT) has ruled that reimbursement of salaries for seconded expatriate employees on a pure cost-to-cost basis, without any profit element or markup, does not amount to Fees for Technical Services (FTS) under the Income Tax Act, 1961, and is therefore not taxable in India.
The tribunal emphasized that FTS implies a commercial transaction with an element of profit or service charge. Where the reimbursement is strictly for actual costs incurred and no additional margin is charged, there is no taxable event under Indian tax law. The decision aligns with the principle that mere recovery of expenses, without enrichment, cannot be treated as income in the hands of the recipient entity.
"The mere act of reimbursing actual salary costs without mark-up cannot be construed as rendering technical services or generating income..."
This ruling provides clarity for multinational enterprises engaging in secondment arrangements, reinforcing that such intra-group cost allocations, when documented appropriately, will not attract FTS taxation in India. Taxpayers must maintain robust cost-justification records to support such claims during assessments.
Citations
- Income Tax Act, 1961
