Income Tax on Foreign Income

Your tax status is 'Resident' and your worldwide income is taxable in India.

You will have to calculate your income by making a profit and loss account. Apparently the fees are received by you as a professional. If you are a new assessee FOR THIS INCOME you will have to decide the basis on which you will maintain your books of account. Your books of accounts have to be maintained as per Section 44AA.

You have option of making your books of account on either of the following basis:-

1) Mercantile: Your income will be reflected as and when you bill (even if payment is not received) and you can record expenses as and when they are billed to you even if you have not paid it.

2) Cash Basis: Your income is reflected as and when you receive the money / cheque / remittance. Your expense is recorded as and when you pay the same.

You cannot have a combination of both. Usually professionals opt for the latter as even service tax is based on the latter.

Assuming that you have opted for the latter, determine the surplus after accounting your professional receipts and your expenses incurred for carrying out your profession. You can claim depreciation @ 60% for your computer system you purchase alongwith software. You also deduct the Professional Tax payments you make on your enrollment. As you are working from home, at most claim your phone and internet expenses but avoid claiming any society or electricity charges.

Your income will be charged as income from business or profession. Along with this income and your other incomes like interest, rents from house property etc. you have basic exemption of Rs.1.9 lakhs and tax is calculated on remaining income at rates varying between 10 and 30%. You can also claim deductions u/s 80C for sertain investment and life insurance as well as u/s 80D for insurance premia.

When your receipts cross Rs.9.00 lakhs you have to register with Service Tax and pay Service tax when your receipts cross 10 lakhs in the year April 1 to March 31. From the next year onwards there will be service tax from the first day itself if you crossed 10 lakhs in current year. As you are providing the service abroad it will be treated as Export and you will not have to pay the service tax provided you receive the money in india in Foreign Exchange.

When your receipts in a financial year crosses 10 lakhs, you need to get your books of account audited by the CA and for your expenses to be allowed against your professional receipts, you may have to apply for TDS on certain expenditure exceeding prescribed limits.

If you have suffered any witholding tax by foreign country, our income tax department will allow you relief against the Indian tax due on the same income to the extent of tax suffered by you. However, if the tax suffered by you is more than the Indian income tax on the same income, our government will not refund you the excess. Moreover they willnot allow you adjust the excess into any taxes due on your other incomes arising in India.

This is briefly how one can explain to you.If you need more clarification on anything you do not understand,  please try and be more specific. I remember you had posted earier and I should remind you when working with foreigner on professional basis, only offer independent personal services. You had listed a couple of websites. If you have designed them then it is independent personal services and treated as your professional receipt. However, if you are doing the marketing for them and are independent, you better consult a CA so that you do not enter into a contract that would make you responsible for the foreigners income in India. Seeing those websites I thought you were managing their shooping cart for those automotive spares. Whatever I have suggested above is based on the fact that you are only designing the website and nothing else.