Tax on foreign income of a resident

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CA Ketan Kothari

Associate Consultant

84 Points Posted on 02 July 2015

Hello Experts.

I am a resident for the year FY2014-2015 and have global Income. I am confused with respect to Double Taxation that i have earned in the foreign Country(Germany)

Please consider the following points here

There is a DTAA agreement between India and germany, Tax shall be determined in the case of a resident of the Republic of India as follows :
Where a resident of the Republic of India derives income or owns capital which, in accordance with the provisions of this Agreement, may be taxed in the Federal Republic of Germany, the Republic of India shall allow as a deduction from the tax on such income of that resident an amount equal to the income-tax paid in the Federal Republic of Germany, whether directly or by deduction, and as a deduction from the tax on such capital of that resident an amount equal to the capital tax paid in the Federal Republic of Germany. Such deduction in either case shall not, however, exceed that part of the income-tax or capital tax (as computed before the deduction is given) which is attributable, as the case may be, to the income or the capital which may be taxed in the Federal Republic of Germany
The above can be concluded that the benefit shall be of Income tax paid in India or in Germany whichever is lower.

Step 1: So, i shall calculate tax on my Taxable income twice, once considering the foreign income and second time not considering it.

The diffrence of the two shall be the Tax to be paid in india on the foreign Income.

Step : 2 Now I shall compare the value of Tax paid in foreign Country with the the amount of tax payable on such Foreign Income in India and the lower of the same shall be subtracted from the Total Tax payable by me (Calcualted on Total Income including Foreign Income) and the balance shall be payable by me.

Please let me know if the steps mentioned by me are correct or the same need to be modified.

Thanks for your help.

Regards

Ketan

Replies (3)

J. K. Ratan

Compliance Advisor

629 Points Posted on 03 July 2015

Dear Sir

India Has signed a bileteral Agreement with republic of germany for avoiding the double taxation on same Income.

And as per Section 90 of Income tax Act 1961:-

I would conclude my answer with an example:-

Case - I

- Income from India INR 2500000

- Income from Germany INR 1500000

- Tax Paid in Germany INR 150000

- Tax payable in India og Global Income (2500000+1500000) INR 200000

TAx Liability in India INR 200000

Less:- Deduction U/s 90 INR 150000

Net Tax Require to Pay INR 50000

Case-II

- Income from India INR 2500000

- Income from Germany INR 1500000

- Tax Paid in Germany INR 250000

- Tax payable in India og Global Income (2500000+1500000) INR 200000

TAx Liability in India INR 200000

Less:- Deduction U/s 90 INR 250000 (subject to maximum liability in India)

Net Tax Require to Pay 00

Note In Case no. II net tax paid in germany is greater than tax payable in India. You can't claim as a refund of excess amount paid in germany.

You can obtain the benefit of DTAA to extend the amount of tax payable in India.

J. K. Ratan

Compliance Advisor

629 Points Posted on 03 July 2015

Dear Sir

India Has signed a bileteral Agreement with republic of germany for avoiding the double taxation on same Income.

And as per Section 90 of Income tax Act 1961:-

I would conclude my answer with an example:-

Case - I

- Income from India INR 2500000

- Income from Germany INR 1500000

- Tax Paid on foreign Income INR 150000

- Tax payable in India og Global Income (2500000+1500000) INR 200000

TAx Liability in India INR 200000

Less:- Deduction U/s 90 INR 150000

Net Tax Require to Pay INR 50000

Case-II

- Income from India INR 2500000

- Income from Germany INR 1500000

- Tax Paid on foreign Income INR 250000

- Tax payable in India og Global Income (2500000+1500000) INR 200000

TAx Liability in India INR 200000

Less:- Deduction U/s 90 INR 250000 (subject to maximum liability in India)

Net Tax Require to Pay 00

Note In Case no. net tax paid in germany is greater than tax payable in India. You can't claim as a refund of excess amount paid in germany.

You can obtain the benefit of DTAA to extend the amount of tax payable in India.

CA Ketan Kothari

Associate Consultant

84 Points Posted on 03 July 2015

Hi Jay,

Thanks for your reply.

Even i hold the same opinion with a little modification that in order to conclude the tax to be paid in India on the foreign income, i need to calculated Tax once including the foreign Inceme(Say tax Amount A) and once excluding the foreign income(Say tax amount B) and the difference of A and B(Say C) shall be compared with the Amout of Tax paid in foreign country and i will get the benefit of the lower of the same.

Further i did not find any such ITR which helps in showing Foreign Income seperately so that i can get the benefit of DTAA.

Anyways thanks for your reply.

Originally posted by : Jay Kumar Ratan

Dear Sir

India Has signed a bileteral Agreement with republic of germany for avoiding the double taxation on same Income.

And as per Section 90 of Income tax Act 1961:-

I would conclude my answer with an example:-

Case - I

- Income from India INR 2500000

- Income from Germany INR 1500000

- Tax Paid on foreign Income INR 150000

- Tax payable in India og Global Income (2500000+1500000) INR 200000

TAx Liability in India INR 200000

Less:- Deduction U/s 90 INR 150000

Net Tax Require to Pay INR 50000

Case-II

- Income from India INR 2500000

- Income from Germany INR 1500000

- Tax Paid on foreign Income INR 250000

- Tax payable in India og Global Income (2500000+1500000) INR 200000

TAx Liability in India INR 200000

Less:- Deduction U/s 90 INR 250000 (subject to maximum liability in India)

Net Tax Require to Pay 00

Note In Case no. net tax paid in germany is greater than tax payable in India. You can't claim as a refund of excess amount paid in germany.

You can obtain the benefit of DTAA to extend the amount of tax payable in India.