Earn Abroad, Pay Tax in India? Unlock Huge Savings with This Crucial Relief!

Author

Aditi Singh | Whalesbook News Team

Detailed Coverage:

Indian residents who receive income from overseas for services like consultancy or technical work may find themselves taxed in both the foreign country and India. To prevent this double taxation, India offers relief under Section 90 (if a Double Taxation Avoidance Agreement or DTAA exists with the country) or Section 91 (unilateral relief if no treaty is in place).

The amount of Foreign Tax Credit (FTC) claimable is restricted. You can only claim credit up to the amount of tax you would have paid in India on that specific foreign income. If the foreign tax paid is more than the Indian tax liability on that income, the excess amount is not refundable or adjustable against other income.

For instance, if an Indian consultant earns $10,000 from Canada and Canada taxes it at 25% ($2,500), but the Indian tax on that income is calculated at $1,800, India will only allow a credit of $1,800.

Penalties and interest paid abroad cannot be claimed as credit. The foreign tax must be finally paid and not under dispute. If the foreign tax is later revised or refunded, the Indian tax liability must be adjusted accordingly.

Crucially, taxpayers must submit Form 67 electronically on the income tax portal, detailing foreign income and taxes paid, along with supporting documents. Without Form 67, the FTC claim can be rejected. The foreign income must be reported in Schedule FSI and the tax credit in Schedule TR of the Income Tax Return (ITR), ensuring consistency with Form 67.

Impact: This news is highly impactful for Indian residents earning foreign income, as understanding these rules can lead to significant tax savings and prevent financial hardship due to double taxation. Understanding the credit limits and documentation requirements is crucial for compliance. Rating: 8/10

Difficult Terms: Double Taxation: When the same income is taxed by two different countries. Double Taxation Avoidance Agreement (DTAA): A bilateral treaty between two countries to avoid taxing the same income twice. Unilateral Relief: Tax relief provided by a country on its own, without a treaty with the other country. Foreign Tax Credit (FTC): A credit claimed in a taxpayer's home country for taxes paid to a foreign country. Income Tax Return (ITR): The form filed with the tax authorities to report income and calculate tax liability. Schedule FSI (Foreign Source Income): A part of the Indian Income Tax Return where foreign income is reported. Schedule TR (Tax Relief): A part of the Indian Income Tax Return where foreign tax credit claims are processed. Form 67: An electronic form required to be filed by Indian taxpayers claiming foreign tax credit.