Tax on Foreign Income of Resident Indian

Contents Covered

• Tax Calculation in Case of Income from India and Other Countries
• Important Compliance Points
• Note: Understanding Average Rate of Tax
• Recap Example (With Figures)
• Conclusion
• FAQs

Tax Calculation in Case of Income from India and Other Countries

If you’re a resident Indian earning income both in India and outside India, and you’ve already paid tax abroad (TDS / withholding tax), it’s essential to follow a structured process to calculate your Indian income tax correctly and avoid double taxation. Here’s a complete guide:

✅ Step 1: Determine Your Residential Status (As per Section 6 of the Income Tax Act)

– Resident and Ordinarily Resident (ROR) → Global income is fully taxable in India.
– Resident but Not Ordinarily Resident (RNOR) → Only Indian income + income from business/profession controlled from India is taxable.
– Non-Resident (NR) → Only Indian-sourced income is taxable.
🌐 Foreign income is taxable in India only if you are ROR.

✅ Step 2: Include Indian and Foreign Income in Total Income

If you’re ROR, both Indian and foreign incomes must be added:
Example:
– Indian Salary: ₹10,00,000
– Foreign Salary (e.g., from UAE): ₹8,00,000
– Total Taxable Income: ₹18,00,000

✅ Step 3: Claim Relief under DTAA or Section 90/91

– Section 90: Applicable if India has a Double Tax Avoidance Agreement (DTAA) with the foreign country.
– Section 91: If no DTAA exists, claim relief for unilateral foreign tax credit.
📌 Keep proof like foreign tax return, Form 16-equivalent, or withholding certificate for claiming FTC.

✅ Step 4: Calculate Indian Income Tax on Total Global Income

Use Indian income tax slab rates (for FY 2024-25, Age < 60):
Example: Tax on ₹18,00,000 ≈ ₹3.24L (assumed)

✅ Step 5: Reduce Foreign Tax Credit (FTC)

This is where the average rate of tax comes into play.
Example:
– Total Global Income: ₹18,00,000
– Total Indian Tax: ₹3,24,000
– Average Tax Rate: ₹3.24L ÷ ₹18L = 18%
– Foreign Income: ₹8,00,000
– Indian tax on foreign income: ₹8L × 18% = ₹1,44,000
– Foreign tax paid = ₹1,50,000
✅ Eligible FTC = ₹1,44,000 (lower of foreign tax paid and Indian tax on that income)

✅ Step 6: Disclose Foreign Income in ITR Properly

While filing your Income Tax Return (ITR):- Use ITR-2 or ITR-3
– Fill Schedule FSI – Foreign Source Income
– Fill Schedule TR – Tax Relief
– Fill Schedule FA – Foreign Assets (e.g., bank accounts, shares, property abroad)

🚨 Important Compliance Points:

1. Maintain documentation of foreign tax paid (e.g., tax receipts, pay slips, tax returns).
2. File ITR before the due date to claim FTC.
3. Form 67 must be filed online on the Income Tax Portal before filing the ITR to claim Foreign Tax Credit (FTC). Without this, the credit may be denied.

📘 Note: Understanding Average Rate of Tax

🧮 Formula:
Average Tax Rate = (Indian Tax Liability ÷ Total Global Income) × 100
This average rate helps determine the maximum Foreign Tax Credit you can claim.
You can claim the lower of:
1. Actual foreign tax paid
2. Indian tax calculated on foreign income using average rate

📊 Recap Example (With Figures):

Indian Income: ₹10,00,000
Foreign Income: ₹8,00,000
Total Income: ₹18,00,000
Indian Tax: ₹3,24,000
Average Tax Rate: 18%
Tax on ₹8L foreign income: ₹1,44,000
Foreign Tax Paid: ₹1,50,000
✅ FTC Allowed: ₹1,44,000

🔚 Conclusion

If you’re a Resident Indian with foreign income, understanding how to correctly compute your tax, claim DTAA relief, and disclose income properly in your ITR is critical to avoid penalties and double taxation.

FAQs

Q: Do Indian citizens have to pay taxes on foreign income?

A: Yes, Indian citizens who are Resident and Ordinarily Resident (ROR) in India have to pay tax on their global income, including foreign income.

Q: How much foreign money is tax free in India?

A: There is no specific exemption limit for foreign income. If you’re a Resident and Ordinarily Resident (ROR), all foreign income is fully taxable in India, unless exempt under a Double Taxation Avoidance Agreement (DTAA).

Q: How to report foreign salary income in India?

A: Report foreign salary income in India by:

1. Using ITR-2 or ITR-3 (for salaried individuals with foreign income).
2. Disclosing it under the “Salary” section.
3. Mentioning details in the Schedule FSI (Foreign Source Income).
4. Claiming Foreign Tax Credit (FTC) using Form 67, if tax was paid abroad.
5. Converting foreign salary to INR using SBI TT buying rate on the last day of the previous year (31st March).Top of Form Bottom of Form

Q: Do I have to pay tax in India if I receive money from abroad?

A: It depends on the nature of the money and your residential status:

• If it’s income (like salary, rent, business income), and you are a Resident and Ordinarily Resident (ROR), then yes, it’s taxable in India.
• If it’s a gift from a relative or within ₹50,000 in a year, it’s not taxable.
• If it’s reimbursement or loan, it’s generally not taxable, but proper documentation is needed.

Q: How to avoid double taxation on foreign income in India?

A: To avoid double taxation on foreign income in India:

1. Check DTAA: See if India has a Double Taxation Avoidance Agreement (DTAA) with the foreign country.
2. Claim Foreign Tax Credit (FTC) for taxes paid abroad by:
   • Filing Form 67 before or along with your ITR.
   • Reporting income in Schedule FSI and Schedule TR of the ITR.
3. Use DTAA method:
   • Exemption method (if income is taxed only in one country), or
   • Credit method (claim credit for foreign taxes paid).

Q: Do I have to pay tax in India if I live abroad?

A: If you live abroad and qualify as a Non-Resident (NR) or Resident but Not Ordinarily Resident (RNOR), you only pay tax in India on income earned or received in India.
Foreign income is not taxable for NRs or RNORs.

Q: Do I have to pay tax if I earn in dollars in India?

A: Yes, if you earn in dollars while residing in India (e.g., freelancing, remote work), it is considered income earned in India and is fully taxable in INR under Indian tax laws.

Any Question, feel free to connect with us“