How is your foreign income taxed?
How is your foreign income taxed?
The time for filing taxes on income has arrived. It is now time to file your tax return. People typically have more than one source of income. Some people make their living by working within the country, while others do so by working outside of it.
There are a lot of people who find job in India for a while, but then they leave to find better opportunities elsewhere. People in this situation often have trouble knowing whether or not their income is taxable and how to make their tax payments; what are some of the factors that should be kept in mind in this regard?
When it comes to paying income tax, one’s residential status is a significant factor. A look at a person’s residential status is done before deciding whether or not to tax that person. A person’s residence status in India is determined by the total number of days spent in the country.
To fulfill specific requirements, one must apply for resident status. The individual has been present in India for at least 182 days during the course of the fiscal year. Whether or not a person has resided in India for at least 60 days during the current fiscal year and for a total of at least 365 days over the four years before to the current fiscal year.
If you are a citizen of India and come back to India within that financial year, and your income, excluding income from overseas sources, is more than 15 lakhs, then the status will change to resident in India after you have stayed in India for 120 days if you meet both of these requirements.
The resident taxpayer has to pay tax on all of their income, no matter where it comes from. That means that taxes will have to be paid on income earned both in India and elsewhere in the world. A person in this situation would be subject to the same rates of income tax as a person working in India…
The section of the form labeled “Foreign Source Income,” also known as “Schedule FSI,” must be filled out with information regarding any income obtained outside the country. Earnings will need to be converted into rupees in order to be paid, even if they were made in a foreign currency. Along with this, details regarding the source of the revenue will need to be provided.
You may be eligible for a tax credit if you can demonstrate that any kind of tax was withheld from the income and that information was included in the return. Taking advantage of the Double Taxation Avoidance Agreement, often known as DTAA, will allow you to avoid paying taxes twice. It is possible to seek relief under Section 91 in the event that India does not have a DTAA in place with the nation in which you are working.
Form-16 will make it possible to get information regarding the salary that was received in India as well as the tax that was withheld from it in the form of TDS. In the event that you do not have a Form-16, you may utilize your pay stub instead. It is necessary to compare the information that has previously been filled in on the ITR form with the information on the Form-16, Form 26AS, and the Annual Information Statement (AIS).
Exemption from paying taxes may be obtained if the country in question has provisions for tax deductions and exemptions. You are eligible for tax exemption if you have made any investments that fall under Sections 80C or 80D of the Internal Revenue Code. In India, you would not be able to make advantage of the exemption or deduction that you received from outside the country. Following the completion of these steps, both your net taxable income and the tax that should be paid on it will be determined.
According to tax expert and chartered accountant Vinod Rawal, if you make money outside of the country, you are required to fill out the relevant sections of Schedule FSI and FA on your income tax return. You are required to report the Income Tax Department of any properties or bank accounts that you hold in a foreign country if you have any.
Failure to do so may result in a disclosure notice. It is possible to be charged with tax evasion for failing to report earnings. In this scenario, the offender faces a fine of ten million rupees every year in addition to a possible prison sentence of seven years.
If you are in India for a period of less than 182 days, you are regarded to be a non-resident or a resident but not ordinarily resident (RNOR), depending on the circumstances. In this scenario, the income you generate in India will be subject to taxation, while any income you earn outside of India will not be subject to taxation in India.
