Taxation of Foreign Salary Income

If you are ever been sent to work on a project abroad, that foreign salary income earned abroad will be taxable in India, provided you are resident in India. The important thing to understand first is the difference between citizenship of a country and residential status. These are two separate concepts. For taxability purpose one needs to consider Residential Status and residential status is determined on the basis of physical presence of an individual in India during the Financial Year. In case of income earned abroad, if you its taxed outside India as well, you can take benefit of DTAA (Double Taxation Avoidance Agreement).

Benefit of DTAA (Double Taxation Avoidance Agreement):

For the purpose of charge of Income Tax, what is significant is the first Receipt of Income. So, any money remitted to India would not make it an income received in India. Although foreign salary will be taxable in India, he would be given relief for any taxes paid in foreign for salary earned there. As the name suggests, India has entered into Double taxation avoidance agreements with many countries to make sure that a person’s income is not taxed twice in two different countries.  So, if salary is taxed in foreign country then credit of taxes paid in US on such income may be claimed in India under the Double Taxation Avoidance Agreement (DTAA) entered between India and US. The benefit of double taxation is provided broadly in two ways i.e; Exemption from double taxation method and Tax Credit (Relief) method.

*Knowing your Residential Status as per Income Tax Act:

An individual is said to be Resident in India for the financial year if any of the following condition is satisfied:

He/She is in India for a period of 182 days or more in that financial year. OR

He/She is in India for 60 days or more during that financial year and has been in India for 365 days or more during 4 previous year immediately preceding the relevant financial year. (In case you leave India for the purpose of employment outside India then consider 182 days instead 60 days.)  

For computing the period of stay, it is not necessary that the stay should be for a continuous period.

For Expert assistance in claiming DTAA benefits contact us at +91 9900397777/ info@preethamandco.com