Global income taxable in India based on residential status

The taxability or exemption would depend on the nature of income received


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My company is sending me to the UK for five months, where I will be paid in British pounds. How do I show this in my income tax return (ITR) filing?

—Amit Singh

The taxability of income earned in the UK would depend on your tax residential status in India during the financial year (FY) 2016-17. Your residential status in turn would be determined by your physical presence in India during the FY and immediately preceding seven FYs. Assuming that you have primarily been based in India and would be working in the UK for five months only, you are likely to qualify as Ordinarily Resident (OR) for FY17. Accordingly, your global income shall be taxable in India irrespective of source or place of receipt of such income. Hence, the income earned in the UK shall be taxable in India subject to the benefits, if any, available under the Double Tax Avoidance Agreement (DTAA) between India and the UK 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 asset located outside India such as, foreign bank accounts, immovable property, share investments or mutual funds, you would be required to furnish its details in the personal ITR.

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

As an OR, if you have overseas assets (including financial interest in any entity) located outside India to be reported or would be claiming a relief under section 90 of the Act (i.e. claiming benefits under the DTAA), you would have to use the tax return form ITR 2.

The salary pertaining to the UK assignment would have to be reported under schedule FSI (Foreign Source Income). The relief under the treaty would be required to be reported in the schedule TR (which has details of taxes paid abroad) and overseas assets in schedule FA (foreign assets). But, depending upon your stay in India, if you qualify as either Non-Resident (NR) or Not Ordinarily Resident (NOR) in FY17, you shall be taxable in India only on India sourced income.

Accordingly, the income earned in the UK shall not be taxable in India provided the salary is directly credited to the overseas bank account. If the salary is directly credited to your Indian bank account, then it shall be taxable in the first instance in India on receipt basis.

As an NOR or NR, you would be required to use ITR 1. As per the recent amendment, if your total income during the FY exceeds Rs.50 lakh, you have to disclose the total assets and liabilities in Schedule AL (assets and liabilities) in your personal tax return.

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