How to report salary earned outside India

It depends on the number of days you stay in India in any given financial year

Indians who are on delegation abroad for a short term or work for overseas clients on independent projects must know a few things about the tax implications on their income earned outside the home country. Such taxpayers are usually unsure if such income needs to be reported in India. Let’s read on to understand the tax implications and the reporting requirements in India of overseas salary income.

Reporting overseas income

Indian tax laws categorise individual taxpayers into residents and non-residents, based on the number of days they stay in India during any given financial year. Their liability to income taxes in India is, to a great extent, dependent on their residential status. Hence, it becomes imperative that you determine your residential status for every given year before you go ahead to determine your income and the taxes due thereon.

As per the tax laws, an individual who is a resident in India must report his global income, i.e. income earned within and outside India, whereas a non-resident has to disclose only the income earned in India in his return of income filed in India.

Working in India and outside India in the same year and with the same employer is quite common these days. There are instances where companies send their employees to overseas offices for a short period of time. As compensation for the work done abroad, the overseas office would pay the individual, salary for the period served. This constitutes income earned outside India. Another instance could be an individual receiving rental income from a house he/she has rented out abroad. Such rental income earned overseas must be reported in India by a resident.

Filing tax returns

So, in such cases, what is the applicable return form and the appropriate schedule in the form that needs to be filled. Form ITR 1 gets ruled out at the very first instance as it is clearly not applicable in a case where foreign income needs to be reported irrespective of whether there has been a tax deduction on such income abroad or not. Accordingly, ITR 2 would be the appropriate form for an individual reporting overseas income. However, one can choose between ITR 2 and 3 depending on the nature and source of income. Such income has to be reported in Schedule FSI (Details of income outside India and tax relief).

Double taxation

As already discussed, a resident Indian must report his global income in his tax returns and also pay taxes on it. However, in case taxes have already been deducted overseas, would not offering such income to tax in India amount to double taxation? Yes, but nothing to panic. To address this, India has Double Taxation Avoidance Agreements (DTAA) with many countries which provide elimination of instances of income getting taxed twice.

If at all income gets taxed in the other country, the taxpayer can always claim a relief in the country of residence. This is otherwise called claiming of Foreign Tax Credit (FTC).

Details of income earned abroad, taxes paid, tax relief claimed and also the relevant article of DTAA which provides for such relief has to be disclosed in the return form under Schedule FSI.

The writer is founder and CEO of ClearTax.

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