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Residential status is dynamic and has to be determined for each financial year

Taxability in India depends on source of income and residential status


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iStockphotos

What happens if there isn’t a Double Taxation Avoidance Agreement (DTAA) between India and another country, and income is earned in that country?

—Prabal Thakur

Taxability in India depends on source of income and residential status.

Typically, source of income lies where the services are performed, or where the asset from which the income arises is located. Any income, the source of which is located in India, is taxable in India.

Residential status is dynamic and is required to be determined for each financial year (FY). It is determined on the basis of physical presence of an individual in India during the relevant FY and past 10 FYs.

An individual who is a ‘resident and ordinarily resident of India’ as per the tax laws, is liable to tax in India for all India-sourced and non-India sourced income.

Thus, an income is taxable in India if the individual qualifies as ‘resident and ordinarily resident’ or the income arose or received in India.

Where there is no DTAA between India and the other country, relief can be claimed under section 91 of the Income-tax Act, 1961 on doubly taxed income. Under section 91, credit can be claimed against India income-tax payable on doubly taxed income at the Indian rate of tax or the other country’s rate of tax, whichever is lower.

Please note that relief under Section 91 is available only if:

a) the individual qualifies as resident of India; and

b) the income accrues or comes from outside India.

I had bought health insurance while I was a resident of India, and I am continuing it even though I have been living in France for 3 years. Are there any related tax benefits that I can avail of?

—Sunita Saldanha

Health insurance premium paid against the health insurance policy in India for self, spouse and dependent children is eligible for deduction up to Rs.25,000 per annum from the gross taxable income. An additional deduction is available if health insurance premium is paid against the health insurance policy of parents up to Rs.25,000 (or Rs.30,000 if they are aged 60 years or more).

Deduction for premium paid (in any of the above scenarios) is allowed only if the payment is not in cash but by way of cheques, demand drafts or even Net-banking. This deduction is available irrespective of residential status in India. Also, the health insurance policy should be approved by the Insurance Regulatory and Development Authority of India to claim deduction.

I have recently (6 months ago) started making small donations to organisations and individuals in India through online portals from my bank account in India. Will this be tax exempt?

— S.K. Shah

Donations made to approved charitable institutions, trusts, non-government organisations (NGOs), or funds in India are eligible for deduction from the gross taxable income. The deduction amount varies depending upon the institution to which the deduction is made ranging from 50% to 100% of the amount donated. For instance, donation made to the Prime Minister’s National Relief Fund qualifies for 100% deduction. However, donation made to the National Children’s Fund qualifies for 50% deduction. In certain cases, the deduction is also limited to 10% of the gross total income.

You should ask for a receipt for the donation made, and it should contain the name and Permanent Account Number (PAN) of the institution and the registration certificate issued by the India income-tax authorities. These details will have to be mentioned in the India income-tax return while claiming the deduction for donation made.

Any donation made to an individual or to any unapproved charitable institution or trust will not qualify for tax deduction. Also, cash donations in excess of Rs.10,000 are not eligible for deduction.

Sonu Iyer is tax partner & people advisory services leader, EY India.

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