Is Salaries paid by Indian Embassy situated at Japan to the local workers included/excluded in national income?

No,

Salaries paid by Indian Embassy situated at Japan to the local workers will not be included in the national income as it is a part of the factor income paid abroad to non-residents. It is subtracted from domestic income to arrive at national income.

Explanation:-

Indian Embassy in Japan is within the economic territory of India. Income generated here by residents (Indian) and non-residents (Japanese) will be included in domestic income.

But, the salaries paid to Japanese local workers (non-residents) will be deducted as factor income to abroad from domestic income to arrive at national income.

National Income = Domestic Income + Factor income from abroad – Factor income to abroad