Your money: Know how to calculate tax on income earned abroad | The Financial Express

Your money: Know how to calculate tax on income earned abroad

Check the withholding tax rate imposed by the foreign country

Your money: Know how to calculate tax on income earned abroad
Income-tax rules prescribe the rate of exchange for the conversion of foreign currency income to Indian rupees for tax purposes.

As work from home has diminished the need for physical presence, one can take up assignments in the form of overseas jobs where salary or fees are received from outside India for services rendered from India. In such situations, what are the points one should be aware of regarding the taxability of such income received from outside India?

Withholding taxes by the foreign country

Akin to TDS we have in our country, the foreign country may also withhold tax while remitting income to India. For example, a USA company may withhold a certain percentage from remittance made to an Indian service provider based on local US laws. Depending on the type of service, the withholding rate could be 10-20%. Accordingly, it is crucial for an individual to understand the withholding rate that would be applicable to their income from outside India, before entering into a service agreement.

Conversion into rupees for taxation

Income-tax rules prescribe the rate of exchange for the conversion of foreign currency income to Indian rupees for tax purposes. Depending on the nature of income, different dates have been specified. For example, for salary income, the taxpayer is required to use the SBI TT buying rate of the day when the salary becomes due or is paid in advance and for professional fees, the last day of the month immediately preceding the month in which such income accrues. This rule is applicable even if no remittance is made into India. Accordingly, resident taxpayers must ensure that payment due dates are clearly outlined in the service agreement and that payments are remitted into the country within the specified period as per RBI.

Credit of foreign taxes paid

The income tax laws do provide relief to resident taxpayers that have suffered tax in a foreign country. This means that credit for taxes withheld in a foreign country can be claimed in India, similar to the claiming of TDS credit. However, while this relief can help reduce the tax liability of the taxpayer in India, so as to avoid double taxation of the same income, no refund can be claimed by the taxpayer on excess taxes paid in a foreign country.

Also read: ICICI Pru Sukh Samruddhi: Multipurpose savings plan offers guaranteed maturity benefits, annual bonus

The taxability of income earned from outside India is not very different from income earned in India. However, since the source of income is in another country, there is a possibility that the income may be subjected to tax in the foreign country also. With the above checklist, individuals can make informed decisions about their net income, compute the total taxes that will be applicable and maintain adequate evidence of income earned.

FOREIGN FEES

* For salary earned in foreign currency, convert it into rupees using the SBI TT buying rate of the day when the salary becomes due or is paid in advance

* Credit for taxes with-held in a foreign country can be claimed in India. But no refund can be claimed on excess taxes paid in a foreign land

The writer is partner, Nangia Andersen India

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.

First published on: 16-11-2022 at 12:10:00 am
Photos
1 Photos
Jawans perform Republic Day rehearsals in high spirit at Kartavya Path amid Delhi cold wave – See PHOTOS
5 Photos
Festive Fervour: Manali Winter Carnival is full of cultural extravaganza – See Beautiful PHOTOS
12 Photos
Redmi Note 12 Pro Plus: Top 12 things to know about Xiaomi’s new 200MP camera phone