Income-Tax-on-Foreign-Income

Income Tax on Foreign Income

Income Tax on Foreign Income

Foreign income refers to income which has been brought into India from foreign countries. Under the Income Tax Act, the tax liability of a person in respect of foreign income is determined based on the residential status of a taxpayer. The residential status under the Income Tax Act is divided into three categories namely:

  • Resident but not ordinarily resident;
  • Resident and ordinarily resident; and
  • Non-resident.

Based on the category under which an assessed falls under, the tax liability would vary as under:

Residents and Ordinarily Resident

Persons who fall under the category of Residents and Ordinarily Resident will be charged income tax on all income accruing, received or deemed to be received in India in the financial year by or on behalf of the taxpayer. Further, Income accruing or arising outside India in the previous year (not received in India) will also be chargeable to Income Tax.

Resident but Not Ordinarily Resident

Persons who fall under the category of Residents but NOT Ordinarily Resident will be charged income tax on all income accruing, received or deemed to be received in India in the financial year by or on behalf of such person. Further, income tax will be chargeable on income accruing or arising outside India and derived from a business or profession set up.

Non-Residents

Persons who fall under the category of Non-Residents will be charged income tax on all income accruing, received or deemed to be received in India in the previous year by or on behalf of the person.

Income Deemed to Accrue or Arise in India

The following income will be deemed to accrue or arise in India for all of the above types of taxpayers:

  1. Incomes accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset, situated in India. Certain exceptions have been laid down to this clause;
  2. Income which falls under the head “Salaries”, if it earned in India;
  3. Income chargeable under the head “Salaries”, payable by the government to a citizen of India for service outside India;
  4. A dividend paid by an Indian company outside India;
  5. Income by way of interest payable by the Government, and in some other special cases of NRIs, etc.;
  6. Income by way of royalty payable by the Government or a resident or a non-resident in the specified cases;
  7. Income by way of fees or technical services payable by the government or a resident or a non-resident in the specified cases.

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