How to file income tax return with foreign income

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As the July 31 deadline for filing income tax returns (ITRs) for the financial year 2023-24 approaches, taxpayers must be gathering documents to ensure they have all paperwork in place. However, individuals with foreign income must take an additional step: Gain a clear understanding of their residential status and international taxation agreements.

According to CA Ruchika Bhagat, Managing Director of Neeraj Bhagat & Co, the first step for individuals earning foreign income is to assess their residential status.

Notably, Non-Resident Indians (NRIs) need not fret, as income earned abroad isn’t subject to taxation in India.

However, for resident Indians, reporting foreign income is obligatory, with taxes payable based on applicable slab rates.

Bhagat emphasises the importance of Double Taxation Avoidance Agreements (DTAA).

She asks taxpayers to ascertain if such agreements exist between India and the country of foreign income.

Under DTAA, individuals can claim credits for taxes paid abroad, averting double taxation of the same income.

Further elucidating the process, Sujit Bangar, Founder of Taxbuddy.com, elaborates on the types of foreign income, including dividends, interest, and capital gains from investments abroad.

“Being a resident of India means all income whether earned from India or outside India will be taxable in India. There can be various sources through which residents can earn foreign income. Now a day’s lot of people are investing in stock exchange outside India so dividend, interest and capital gains on foreign investment are part of their regular income,” he told CNBC-TV18.com.

Section 90 of the Income Tax Act, provides tax relief where the Indian government has DTAA with the country from which the assessee has earned income.

Section 91 provides a potential avenue for relief through unilateral means i.e. if income is earned in a country where the Indian government do not have a DTAA agreement.

To claim relief under a DTAA or Section 91, taxpayers must file an Indian income tax return (ITR) and furnish a tax payment or deduction certificate from the relevant foreign tax authority.

Based on income earned and taxes paid in a foreign country, the assessee will get tax relief.

Taxpayers must further adhere to guidelines issued by the CBDT and furnish Form 67 while filing ITR.

This form facilitates the declaration and estimation of taxation on foreign income.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow