Attention taxpayers! Here’s what to do if you are earning income from abroad

• July 1, 2023
• CA Chandan Agarwal's Office

It is mandatory to report all foreign assets and incomes earned by those who are residents of India in their income tax returns filed in India.

The income earned by a resident taxpayer is taxable under Indian tax rules. But what if the income comes from a foreign country? Is foreign income in India taxable? Will the Indian taxpayer face double taxes if the income is taxed by the host country where the earnings are generated? These are some of the most frequently asked questions by Indian taxpayers. More and more Indians are travelling abroad to work and earn a living. These taxpayers are frequently unprepared to appreciate the taxability of their foreign income.

In India, a resident’s whole worldwide income is subject to income tax. Foreign income, defined as income accruing or generated outside India in any fiscal year, is taxable in that year even if it is not received or brought into India. Even if the foreign government restricts income remittance, there is no escape from income tax liability.

If you are an Indian taxpayer with international income, here is a quick explanation from Archit Gupta, Founder and CEO of Clear, a firm offering taxation and financial solutions.

With so many online and digital options to work with, it is not uncommon for Indian taxpayers to earn income from abroad. If an Indian resident taxpayer has income from services rendered aboard he/she may be caught in a scenario where such income may have the possibility of getting doubly taxed, once in the country of source and then in the country of residence. In such a case, the taxpayer must always intimate the payer, of which country he/she is a tax resident of.

Secondly, such a taxpayer must also explore the DTAA between the two countries. DTAA or double taxation avoidance agreement, lays down the benefits available to such a taxpayer, and where such an income must be taxed.

This helps the taxpayer avoid paying tax twice or he/she may be allowed to claim the credit of taxes paid abroad depending upon the details as per the DTAA.

Before taking up projects from different countries, the taxpayer must explore whether there is a DTAA that India has with such other countries and how he/she can benefit from such a DTAA and only then he must figure out how payment shall be taken.

Also, it is mandatory to report all foreign assets and incomes earned by those who are residents of India in their income tax returns filed in India. In case there is a withholding tax requirement in the country of source, the taxpayer may have to face some tax deduction at the source, therefore, it helps to consult an expert and intimate the payer as to how tax compliance must be taken care of.

Source: https://www.financialexpress.com/business/investing-abroad-how-to-avoid-double-taxation-if-earning-income-from-abroad-3149533/