NRI Tax Return Filing and Use of DTAA
Like Resident Indians, Non Resident Indians are also liable to pay taxes on income earned in India as well as File their NRI Tax return in India.
There
are 3 categories of person in India i.e. Resident, Non Resident and Resident
but not ordinary resident (RNOR).
In case
of Non Resident, only income earned or accrue or arise in India would be
taxable and not the income earned or accrued or arise outside India.
In case
of RNOR, apart from the income received or accruing or arising in India, even
income from a business controlled in India or profession set up in India is
taxable.
Accordingly, NRIs and
Person of Indian Origin always plan their number of days of stay in India in
such a manner that they remain Non Resident in any particular year in order to
avoid payment of tax on overseas income in India as well as to avoid filing NRI Tax Return in India.
Normally,
the right to tax on income is with the country where the person is resident (residence
rule) and source country, where source of income lies, has limited right to
taxation on such income (source rule).
Therefore,
there may be a case that income of NRI is subject to double taxation, firstly
owing to residence rule and secondly, owing to source rule. DTAA assists in
avoiding such double taxation on taxpayers based in multiple jurisdictions. As
per provisions of DTAA, such double taxation can be avoided by providing
foreign tax credit in the country of residence.
If an individual is Resident in India both as per DTAA as
well as domestic law, then right to tax on such income would be of India and
limited right of taxation will be with the other country.
Foreign Tax Credit in India
a) a) From the person making the payment
and responsible for deduction of TDS or
b) b) From the income tax authority of the
foreign country or
It may
be noted that FTC will be limited to the extent of amount of taxes payable in
India.
Therefore,
from the foregoing, it may be concluded that DTAA assist in avoiding double
taxation in case a person is liable to pay taxes in multiple jurisdiction.
This
need to be kept in consideration at the time of NRI Tax Return filing as well as filing of Income tax Return of Residents.
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