Tax implication for advance to emplyee from overseas branch
This query is : Resolved
15 May 2009
An indian company having a branch in philippines, hires an employee in india and deputed him in branch, can pay him some advance from branch and adjust against salary payable from india?
What will be the tax implications if answer is "yes".
What will be the tax implications if answer is "yes".
15 May 2009
I guess it would be taxable at the time of receipt of advance.
26 July 2025
Here’s how the tax implication works for an advance to an employee from an overseas branch adjusted against salary in India:
---
### Scenario:
* Indian company has a branch in the Philippines.
* Employee hired in India but deputed to the Philippines branch.
* Philippines branch pays **advance** to the employee.
* The advance is later adjusted against salary payable by the Indian company.
---
### Tax Implications:
1. **From the Employee’s Perspective:**
* **Salary Income:**
The employee’s total salary income (whether paid by Indian company or overseas branch) is taxable in India if the employee is a **resident** in India during the financial year.
* **Advance Payment:**
The advance received from the overseas branch is considered part of **salary income** at the time of receipt.
* **Adjustment:**
When the advance is adjusted against the salary payable by Indian company, it’s just an accounting entry; the employee’s total taxable salary remains the same.
2. **From the Indian Company’s Perspective:**
* The Indian company will show the **gross salary payable** to the employee, including the amount adjusted against the overseas advance.
* TDS (Tax Deducted at Source) will be calculated on the full salary payable to the employee in India, irrespective of advances from overseas branch.
* The advance paid by the overseas branch is not income for the Indian company but an inter-branch transaction.
3. **From the Overseas Branch Perspective:**
* Payment of advance to employee is an expense for the branch (salary or loan advance).
* It will be recorded in the books as an advance against salary.
* No direct tax implications in India as the branch is outside India, but proper documentation is necessary for transfer pricing and inter-company transactions.
---
### Important Points:
* **Residential status of employee** matters: If the employee is resident in India, global income (including salary from foreign branch) is taxable in India.
* Salary income will be taxable in India when received or accrued.
* Proper **documentation** of advance and adjustment is necessary to avoid any tax complications.
* Employer must deduct TDS on total salary income payable to the employee in India.
---
### Summary:
| Aspect | Tax Treatment |
| -------------------------------- | -------------------------------------------------------------------------- |
| Advance from overseas branch | Considered part of salary income for employee at time of receipt. |
| Adjustment against Indian salary | Accounting entry; total salary taxable in India as per residential status. |
| Indian company | Deduct TDS on full salary payable to employee in India. |
| Overseas branch | Expense in branch books; no direct Indian tax impact. |
---
---
### Scenario:
* Indian company has a branch in the Philippines.
* Employee hired in India but deputed to the Philippines branch.
* Philippines branch pays **advance** to the employee.
* The advance is later adjusted against salary payable by the Indian company.
---
### Tax Implications:
1. **From the Employee’s Perspective:**
* **Salary Income:**
The employee’s total salary income (whether paid by Indian company or overseas branch) is taxable in India if the employee is a **resident** in India during the financial year.
* **Advance Payment:**
The advance received from the overseas branch is considered part of **salary income** at the time of receipt.
* **Adjustment:**
When the advance is adjusted against the salary payable by Indian company, it’s just an accounting entry; the employee’s total taxable salary remains the same.
2. **From the Indian Company’s Perspective:**
* The Indian company will show the **gross salary payable** to the employee, including the amount adjusted against the overseas advance.
* TDS (Tax Deducted at Source) will be calculated on the full salary payable to the employee in India, irrespective of advances from overseas branch.
* The advance paid by the overseas branch is not income for the Indian company but an inter-branch transaction.
3. **From the Overseas Branch Perspective:**
* Payment of advance to employee is an expense for the branch (salary or loan advance).
* It will be recorded in the books as an advance against salary.
* No direct tax implications in India as the branch is outside India, but proper documentation is necessary for transfer pricing and inter-company transactions.
---
### Important Points:
* **Residential status of employee** matters: If the employee is resident in India, global income (including salary from foreign branch) is taxable in India.
* Salary income will be taxable in India when received or accrued.
* Proper **documentation** of advance and adjustment is necessary to avoid any tax complications.
* Employer must deduct TDS on total salary income payable to the employee in India.
---
### Summary:
| Aspect | Tax Treatment |
| -------------------------------- | -------------------------------------------------------------------------- |
| Advance from overseas branch | Considered part of salary income for employee at time of receipt. |
| Adjustment against Indian salary | Accounting entry; total salary taxable in India as per residential status. |
| Indian company | Deduct TDS on full salary payable to employee in India. |
| Overseas branch | Expense in branch books; no direct Indian tax impact. |
---
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