Dear Girish
Although I am not senior CA but would like to take this opportunity to answer your queries.
I understand that, for Financial Year 2009-10, you are ordinary resident in India and your world Income shall be taxable in India.
Replies to your queries:
1. While computing my income tax liability for the period Apr 2009 - Mar 2010, will the income earned in UK be added to the taxable income in India for the said period?
Reply: Yes, however, you may be out of tax provision in UK provided you/your terms of employment satisfies all the below given conditions of Article 16 (2) of Indo-UK DTAA:
Extract of Indo-UK DTAA
ARTICLE 16 - Dependent personal services - 1. Subject to the provisions of Article 17 (Directors’ fees), 18 (Artistes and athletes), 19 (Governmental remuneration and pensions), 20 (Pensions and annuities), 21 (Students and trainees) and 22 (Teachers) of this Convention, salaries, wages and other similar remuneration derived by a resident of a Contracting State (India) in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State (UK). If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.
2. Notwithstanding the provisions of paragraph 1 of this Article, remuneration derived by a resident of a Contracting State (India) in respect of an employment exercised in the other Contracting State (UK) shall not be taxed in that other State (UK) if :
(a) he is present in the other State (UK) for a period or periods not exceeding in the aggregate 183 days during the relevant fiscal year; (I believe you does satisfy this condition)
(b) the remuneration is paid by, or on behalf of, an employer who is not resident of that other State (UK); (May be on behalf of your Indian holding company) and
(c) the remuneration is not deductible in computing the profits of an enterprise chargeable to tax in that other State (UK). (In other words, remuneration paid to you is accounted in the books of Indian holding company)
2. If the answer to above question is yes, can I claim HRA (for the rent paid by me in UK)?
Reply: Yes provided you meet with the conditions/restrictions mentioned u/s. 10(13A) read with Rule 2A
Extract of Income Tax Act 1961
Section 10
(13A) any special allowance specifically granted to an assessee by his employer to meet expenditure actually incurred on payment of rent (by whatever name called) in respect of residential accommoda- tion occupied by the assessee, to such extent as may be prescribed having regard to the area or place in which such accommodation is situate and other relevant considerations.
Explanation.—For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply in a case where—
(a) the residential accommodation occupied by the assessee is owned by him ; or
(b) the assessee has not actually incurred expenditure on payment of rent (by whatever name called) in respect of the residential accommodation occupied by him ;
Extract of Income Tax Rules 1962
PART II
DETERMINATION OF INCOME
A.—Salaries
Limits for the purposes of section 10(13A).
2A. The amount which is not to be included in the total income of an assessee in respect of the special allowance referred to in clause (13A) of section 10 shall be—
(a) the actual amount of such allowance received by the assessee in respect of the relevant period; or
(b) the amount by which the expenditure actually incurred by the assessee in payment of rent in respect of residential accommodation occupied by him exceeds one-tenth of the amount of salary due to the assessee in respect of the relevant period; or
(c) an amount equal to—
(i) where such accommodation is situate at Bombay, Calcutta, Delhi or Madras, one-half of the amount of salary due to the assessee in respect of the relevant period; and
(ii) where such accommodation is situate at any other place, two-fifth of the amount of salary due to the assessee in respect of the relevant period,
whichever is the least.
Explanation : In this rule—
(i) “salary” shall have the meaning assigned to it in clause (h) of rule 2 of Part A of the Fourth Schedule;
(ii) “relevant period” means the period during which the said accommodation was occupied by the assessee during the previous year.
3. If the answer to first question is yes, then for how many years will my UK income continue to be taxable in India? My understanding is that I can claim credit for the tax already paid in UK while arriving at tax liability in India, correct?
Reply: Taxability in India of Salary (Income) earned in UK depends on your residential status in India. If you are likely to stay outside India for more than 183 days in up coming financial years.You shall be termed as Not resident in India for all these years and so no tax in India.
Further, for F.Y. 2009-10, as you have already burdened with Tax at UK by way of withholding tax, you shall be entitled to relief by way of Elimination of double Taxation which can be understand from Article 24 (2) of Indo UK DTAA.
Extract of Indo-UK DTAA
ARTICLE 24 - Elimination of double taxation - 1. Subject to the provisions of the law of the United Kingdom regarding the allowance as a credit against United Kingdom tax of tax payable in a territory outside the United Kingdom (which shall not affect the general principle hereof):
(a) Indian tax payable under the laws of India and in accordance with the provisions of this Convention, whether directly or by deduction, on profits, income or chargeable gains from sources within India (excluding, in the case of a dividend, tax payable in respect of the profits out of which the dividend is paid) shall be allowed as a credit against any United Kingdom tax computed by reference to the same profits, income or chargeable gains by reference to which the Indian tax is computed.
(b) In the case of a dividend paid by a company which is a resident of India to a company which is a resident of the United Kingdom and which controls directly or indirectly at least 10 per cent of the voting power in the company paying the dividend, the credit shall take into account in [addition to any Indian tax for which credit may be allowed under the provisions of sub-paragraph (a) of this paragraph] the Indian tax payable by the company in respect of the profits out of which such dividend is paid.
2. Subject to the provisions of the law of India regarding the allowance as a credit against Indian tax of tax paid in a territory outside India (which shall not affect the general principle hereof), the amount of the United Kingdom tax paid, under the laws of the United Kingdom and in accordance with the provisions of this Convention, whether directly or by deduction, by a resident of India, in respect of income from sources within the United Kingdom which has been subjected to tax both in India and the United Kingdom shall be allowed as a credit against the Indian tax payable in respect of such income but in an amount not exceeding that proportion of Indian tax which such income bears to the entire income chargeable to Indian tax.
For the purposes of the credit referred to in this paragraph, where the resident of India is a company, by which surtax is payable, the credit to be allowed against Indian tax shall be allowed in the first instance against the income-tax payable by the company in India and, as to the balance, if any, against the surtax payable by it in India.
Do revert for further clarification.
Best Regards
Juzer
CAclubindia
