Municipal tax paid in outside India

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This query is : Resolved

CA Huzefa Hamid (Querist)

14 November 2009 If the house property situated at foriegn country & the Municipal tax paid in foriegn country & assessee in resident in India then whether the municipal tax paid in foriegn country in deductible or not?

Sunil

Sunil (Expert)

14 November 2009 You better refer to the relevant Articles of the DTAA read with the OECD model for cross border taxation. Usually, the income on property is to be calculated as per the law of the land where it is situated and whatever income that is calculated is your global income for taxing in India being resident of India. This income will be included with your other income and the tax suffered by you will be adjusted to the Indian tax on this income only and not other incomes in India. Therefore you read the DTAA withe the country first. If there is no DTAA, then you have to calculate the Income from HP as per our Income Tax Act and that does not specify that the Municipal Authority has to be in India. Usually whatever taxes are levied on the property other than direct taxes like wealth tax are allowable. Our Act says 'A local authority' and does not say a local authority in India. Therefore if you have paid the local authorities from your rent it should be allowable. The Local Authority may be called any name in the jurisdiction of the property. But it is important for you to see if DTAA spells out how to calculate the income on house property if you are not resident in the contracting state where the property is located.

However, please note that you will not be allowed interest on borrowed capital outside India if you have not deducted or paid on grossed up basis the Tax as per Section 195.

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