Tax on income earned abroad depends on residential status

Global income of those with Ordinarily Resident status is taxed in India, irrespective of source or place of receipt of income


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I’ll be in France for 3 months for work. I will be paid in euros. Will it be taxed in India in financial year (FY) 2016-17?

—Harshit Pillai

Taxability of income earned in France will depend on your tax residential status in India in FY17. This status would be determined by your physical presence in India during FY17 and in the immediately preceding seven FYs (1 April 2009 to 31 March 2016).

Assuming that you have been primarily based in India and will work from France for 3 months, you are likely to qualify as Ordinarily Resident (OR) of India for FY17. So, your global income shall be taxable in India, irrespective of the source or place of receipt of the income. Hence, the income earned in France shall be taxable in India, subject to the benefits, if any, available under the Double Tax Avoidance Agreement (DTAA) between India and France as per Section 90 of the income tax Act, 1961. The taxability or exemption would depend on the nature of income received.

As you would qualify as an OR, if you have any assets located abroad, then you would be required to furnish details of assets such as foreign bank accounts, immovable property, and investment in shares and mutual funds in the personal income-tax return.

Failure to comply with the above disclosure requirements may attract penal consequences.

Further, as an OR, if you claim relief under section 90 of the Act, you have to use income tax return-2 (ITR 2). The salary pertaining to the France assignment has to be reported under schedule FSI (foreign source income). The relief under DTAA has to be reported in the schedule TR and overseas assets in schedule FA.

If depending upon your stay in India, you qualify as either a Non-resident (NR) or as Not Ordinarily Resident (NOR) in FY17, you shall be taxed in India only on India-sourced income. Accordingly, the income earned in France for rendering services there shall not be taxed in India provided the salary is also directly credited to the overseas bank account. If the salary is directly credited to your Indian bank account, it shall be taxable in the first instance in India on receipt basis.

If your total income during FY17 exceeds Rs.50 lakh, you will have to disclose the total assets and liabilities in Schedule AL in your personal tax return.

If the aforesaid salary is taxable in India, your employer will have to deduct taxes from it and deposit into Indian government’s treasury within the specified time, and comply with other tax obligations. If taxes are not deducted by the employer, you will have to pay taxes through the advance tax route in instalments during FY17, or as self-assessment tax at the time of filing your return of income.

Salary would include any taxable benefits or perquisites such as rent-free accommodation provided by the employer in France.

If you are paid on per diem basis in France during the assignment, taxability in India will have to be examined separately.

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