Or do you spend some part of the year in India and rest of the career period outside India?
That means you probably facing a brain twisting barrier of ambiguity on taxation.
That means you are spending some part of the year in India and rest of the career period outside India. Will a person working both in India and outside for a certain time be taxed in both the countries or is there any tax regulation present. The relieving information is that a person could save himself from Double Taxation under ‘Double Tax Avoidance Agreements (DTAA)’ arrangement between the various countries and India. An individual’s tax liability is dependent on his residential status and source of income. A Non-Resident or Not Ordinarily Resident (NOR) is taxed on the Indian sourced income while a Resident and Ordinarily Resident (ROR) is taxed on his global income.
How can an individual get relief from double taxation?
Let’s understand the methods:
1) Exemption Method
Under this route, an individual could pay tax in either of the states with respect to the income arising in the source state. For instance, a UK national qualifying ROR in India during 2014-15 could be exempted to pay tax in India based on tie-breaker clause. Here a person would not be required to pay tax for his income earned in UK, provided a Tax Residency Certificate (TRC) is submitted along with Form 10F for claiming exemption.
2) Tax Credit Method
This method allows an individual to get foreign tax credit in the resident state for tax paid in the source state. For instance, an ROR in the year of deputation would be taxed both in India and the UK. But, through tie-breaker clause, an individual could get a tax credit in India for the tax paid in the UK for double-taxed income.
3) Countries with which no agreement exists
In the absence of DTAA, an Indian resident could claim foreign tax credit as per the domestic tax laws under the section 91 of the Act. Section 91 says:
i.) A citizen of a country where there is no DTAA qualifying ROR in India, could get deduction in India for the sum calculated on said doubly tax income at the Indian rate of tax or the rate of tax of the said country, whichever is lower, or the Indian rate of tax if both the countries have same rate. Provided that the individual proves that, the income is accrued or arose during that previous year outside India and he has paid the tax in country where there is no DTAA.
ii.) If any person who is resident in India in any previous year proves that in respect of his income which accrued or arose to him during that previous year in Pakistan he has paid in that country, by deduction or otherwise, tax payable to the Government under any law for the time being in force in that country relating to taxation of agricultural income, he shall be entitled to a deduction from the Indian income-tax payable by him, of the amount of the tax paid in Pakistan under any law aforesaid on such income which is liable to tax under income tax act, or of a sum calculated on that income at the Indian rate of tax, whichever is less.
For instance, an ROR in the year of deputation will taxed in both India and Pakistan, However, he can claim deduction in India in respect of tax paid by him in Pakistan, provided that such income is relating to taxation of agriculture income, which accrued or arose in Pakistan during previous year.
iii.) A non-resident having a share of income from a registered firm resident in India, could get deduction in India for the sum calculated on said doubly tax income at the Indian rate of tax or the rate of tax of the said country, whichever is lower, or the Indian rate of tax if both the countries have same rate. Provided that the individual proves that, the income is accrued or arose during that previous year outside India and he has paid the tax in country where there is no DTAA.
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