Guide on Foreign Income and Taxation thereon

- CA. Deepanshu Soni

Guide on Foreign Income and Taxation thereon

    Do you have a job with an international business or do those businesses pay you in USD or another currency for your services?

    Do you aware that any income you earn from sources outside of India will be subject to tax in India if you are a resident? Even if you receive your income from foreign nations after paying the applicable taxes in those nations, you must still declare it as taxable income in India and pay the applicable taxes. However, section 90/91 of the Income Tax Act of 1961 allows you to deduct foreign taxes you paid on such income.

    In this post, we'll examine several taxable foreign income and income tax-related topics one at a time.

    What is foreign income and when it is taxable?

    According to the Income Tax Act, a person's tax liability is determined by his residency status during the fiscal year in which the income accrues, arises, or is received by him.

    An individual is said to be resident in India in any financial year if he has been in India during that year:

    • for a period of 182 days or more; or

    • for a period of 60 days or more and has also been in India within the preceding four years for a period or periods of 365 days or more.

    As a result, a person's residency status will typically depend on his or her actual presence in India rather than on their nationality.

    In the case of a person who is resident, the total income of any financial year includes such income which:

    (a) is received or is deemed to be received in India in such year by him, or

    (b) accrues or arises to him or is deemed to accrue or arise to him in India during such year, or

    (c) accrues or arises to him outside India during such year.

    The words “accrues” and “received” are to be understood in their plain general meaning, as there is no particular definition thereof in the Income-tax Act.

    So, for resident individuals of India, all the foreign income will be included in his/her taxable income.

    And if a person is considered as a non-resident on the basis of the above given definition of resident if he is not covered under it, then all the foreign income of such person will be taxable in the countries in which such foreign income is earned. However, the income which is accrued or earned in India by such person will be taxable in India only.

    For example, If Mr. A is a non-resident person and earns certain income from buying and selling shares of Indian companies with an Indian broker, then such income will be tax as a capital gain income in India only. Mr. A will need to file his ITR in India and pay the required taxes on his capital gains.

    Special things to be kept in mind by non-resident Indian while filing their taxes in India:

    1. Taxable income will not include income earned abroad

    The taxable income of NRI in India will not include the income earned by them in the foreign countries in which they are residing.

    2. Taxable Income to Include income earned in India

    All the incomes earned by them in India, it may be from salary, house property, capital gains and others which are accrues or arise in India will be taxable in India only

    3. No benefit of basic exemption limit for some income

    If NRI is earning any long-term or short-term capital gains on which special rates of taxes are applicable like in case of section 111A or 112, then the benefit of basis exemption limit of no tax upto ₹ 2,50,000 will not be applicable. NRI’s are required to pay tax without claiming any basic exemption limit on such income.

    4. Different TDS rate as compared to residents

    In most of the case, TDS deducted on Incomes to NRI is around 30% which is substantially more as compared to residents. This is also one of the reasons that the NRIs should file their IT returns in India for claiming TDS deducted on higher rates.

    5. No benefit of section 80DD or 80DDB for medical expenditure on treatment of self or dependent is available to NRI.

    6. No Benefit of section 80TTB which is exemption of interest income up to ₹ 50,000 is available to senior non-residents.

    Special things to be kept in mind by resident Indian while earning foreign income:

    1. Filing of form 67

    Residents tax payers should be aware that they are eligible to claim the deduction of foreign taxes paid by them at the time of receiving foreign income. To claim the deduction of withholding taxes from overall tax liability, the resident is required to file form 67 on income tax portal.

    This benefit can be claimed under section 90 or 91 of Income Tax act, 1961.

    2. Conversion of foreign income into Indian currency

    Income earned outside income is required to be converted into Indian currency by using telegraphic transfer buying rate (TTBR) of the last day of the month before the month in which income is due.

    3. File schedule FSI (Foreign source income) and FA (Foreign assets) in ITR

    Many people don’t report their foreign income correctly in ITR. It is therefore required for them to file specific schedules in ITR form related to foreign income correctly and do not skip the same. Schedule FSI and FA are mandatory in case of foreign income and holding of foreign assets outside India.

    Reporting of foreign income and calculation of correct taxes and benefits thereon is a tedious task and required a lot of knowledge and research on part of an individual.

    We at ‘tax4sure’ recommends you to use our expert service to file your returns with utmost ease and expert assistance within no time and accurately.


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