Foreign income and transfers taxation

Here’s a detailed explanation for your queries regarding foreign income and transfers for an Indian citizen working in the US:

1. Disclosure and Taxation of US Earned Income in Indian ITR

• Residential Status:
  Tax liability in India depends on your residential status for the financial year.

  • If you are a Resident and Ordinary Resident (ROR) in India, you are taxable on global income, i.e., income earned anywhere in the world including the US.

  • If you are Non-Resident Indian (NRI) or Not Ordinarily Resident (NOR), only Indian-sourced income is taxable in India.

• Double Taxation Avoidance Agreement (DTAA):
  India and the US have a DTAA to avoid double taxation. Income taxed in the US can be claimed for relief in India through:

  • Foreign Tax Credit (FTC) under Section 90 or 91 of the Income Tax Act.

  • You must disclose your global income (including US income) in Indian ITR and claim the tax paid in the US as credit to avoid double taxation.

• Summary:

  • Disclose US income in Indian ITR if you are a resident.

  • It will be taxed in India but with credit for tax already paid in the US.

2. Taxation on Transfers from India to US Bank Account and TCS

• Transfer from India to US bank account is not considered income in India. It is a transfer of your own funds.

• However, Tax Collected at Source (TCS) at 5% is applicable on remittances exceeding Rs. 7 lakh in a financial year under Section 206C(1G). This TCS is a tax collected upfront and not a tax on income.

• Can you claim refund of TCS?

  • Yes, if your total tax liability is less than the TCS deducted, you can claim a refund by filing your Indian Income Tax Return.

  • The TCS amount will be credited against your total tax liability for the year.

• Summary:

  • Transfer itself is not taxable income.

  • TCS is collected on remittance but can be claimed back via ITR if applicable.

Additional Points:

• Investment in shares or mutual funds:
  Gains from shares or mutual funds held in India will be taxable as per Indian tax laws (capital gains).

• Redeeming mutual funds in US account:
  If these funds were invested and redeemed outside India, tax implications depend on where the income arose and your residential status.

In short: