Updated on: Jun 19th, 2024
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3 min read
Have you worked abroad during the financial year and earned some income? Yes!!!! That income may also be taxable in India. If you are a resident Indian, as per the income tax rules, the income earned anywhere in the world is taxable to you in India. Some tax may have been deducted outside of India on such foreign income. But how should this income be included in an income tax return? Let’s find out.
Tax is charged by countries based on two rules:
So, there may be situations where one country charges tax on an income based on source rule, whereas another country charges tax based on residence rule. Won’t it be Double Taxation? Yes, it will be (Double taxation occurs when the same income is taxed twice in the hands of the taxpayer), but if you have paid taxes in a country, you can claim a credit for the tax paid against your tax liabilities in your home country if both countries have Double Tax Avoidance Agreement (DTAA).
If you have paid any tax on a foreign income and such foreign income is also taxable in India, the tax so paid in a foreign jurisdiction shall be creditable against the tax payable in India on such Income, and such credit against Indian tax liabilities is essentially a foreign tax credit.
Section 90 is intended to deal with situations of double taxation in which India has signed a DTAA with a foreign country. Section 91 deals with situations in which there is no such agreement.
Adopting Rule 128 and Form 67 eliminated most of the ambiguity surrounding obtaining tax credits. Foreign Tax Credit (FTC) in India is governed by Rule 128 of the Income Tax Rules, which became effective on April 1, 2017. The following conditions are covered under the rule:
Provided, that the credit for such disputed tax shall be allowed in the year in which such income is offered to tax in India if the taxpayer furnishes evidence of settlement of dispute and evidence to the effect that he has discharged the liability for payment of such foreign tax within six months from the end of the month in which the dispute is finally settled.
To claim FTC, the taxpayer must furnish the following documents.
If you are a resident, income earned anywhere in the world must be included in your total income.
Income tax on NRIs
TDS on rental property owned by NRIs
All about NRE and NRO accounts
If you earn income abroad as an Indian resident, it may be taxable in India. You can claim a Foreign Tax Credit (FTC) to avoid double taxation if both countries have a Double Tax Avoidance Agreement (DTAA). Rule 128 governs FTC in India, outlining conditions and documentation required. Include foreign income in INR, apply DTAA, and submit Form 67 to claim credit. Check for disputes, source-wise credit, and tax payable under Indian laws vs. tax paid in foreign jurisdiction.