How is your foreign income taxed?

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This is the income tax season. Time to file return is here.  People have several sources of income. Some people earn by working in the country, some work abroad. There are many people who work in India for some time and go abroad after getting a good offer. Such people facde a problem understanding if their income is taxable and how to pay it, what are the things to be kept in mind?

Residential status is important in the matter of income tax. Before imposing tax on a person, his residential status is seen. The number of days a person stays in India determines his residential status.

There are certain conditions to be a resident. The person has stayed in India for 182 days or more during the financial year. Whether a person has stayed in India for 365 days or more in the 4 years preceding the financial year and for at least 60 days in that financial year. If you are a citizen of India and come back to India in that financial year, and your income excluding income from foreign sources,  is more than 15 lakhs, then after staying in India for 120 days, the status will become resident.

The global income of the resident taxpayer is subject to tax. That means the income earned both in India and abroad will be taxable in India. The same income tax rates would apply to such a person as a person employed in India…

Income earned abroad has to be shown in Schedule ‘Foreign Source Income’ i.e. Schedule FSI in the Income Tax Return (ITR) form. Earnings will have to be paid by converting foreign currency earnings into rupees. Along with this, information about the source of income will have to be given. If any kind of tax has been deducted on the income, then you can claim tax credit by showing it in the return. You can avoid double tax by taking advantage of Double Taxation Avoidance Agreement (DTAA). If India does not have DTAA with the country where you are doing job, then relief can be taken under section 91.

The information about the salary received in India and the tax deducted on it i.e. TDS will be available from Form-16. If you do not have Form-16, you can use salary slip. The details already filled in the ITR form have to be matched with Form-16, Form 26AS and Annual Information Statement (AIS).

In case of deduction and exemption available in the country, tax exemption can be availed. If you have made any investment under 80C or 80D, then you can take tax exemption. You will not be able to use the exemption or deduction received abroad in India. After filling these details, your net taxable income and tax on it will be known.

Tax expert and chartered accountant Vinod Rawal says that on earning abroad, you have to give information in Schedule FSI and FA in income tax return. If you have any property or bank account abroad, you must inform the Income Tax Department about it. Failure to do so may result in a disclosure notice. Not showing earnings can be considered as tax evasion. In such a case, there is a fine of 10 lakh rupees annually and a jail term of up to 7 years.

If you stay in India for less than 182 days, you are generally considered as non-resident or resident but not ordinarily resident (RNOR). In this case, your income earned in India will be taxed, but foreign income will not be taxed in India.