Taxation of Income from Foreign Sources

Income from foreign sources raises the issue of double taxation. Pay tax in the foreign country and then pay tax for that income in India as well. To tackle this you get a tax relief on your foreign income. There are two ways of seeking relief, depending on whether India has a Double Taxation Avoidance Agreement or not with the country from where the income has been generated. In cases where a DTAA does exist, the calculation is rather simple. Your income from both foreign and Indian sources are added up. Depending on the slab it falls under, your total tax liability is calculated. From this amount, the tax you’ve already paid in the foreign country is deducted. What is now left is the remaining tax you owe the Government of India. In cases where a DTAA does not exist, an average Indian tax rate and a Foreign tax rate needs to be computed. This is how we compute it:

Average Indian tax rate = Taxes paid on Indian income + Taxes paid on foreign income / Indian income + foreign income And Foreign tax rate = Taxes paid on foreign income/Foreign income Whichever rate is lower, becomes the relief for your doubly taxed income.

Also Read:-How to calculate income tax refund?

Also Read:-Taxation of Non Resident Indians

Also Read:-Income Tax Section 80EE: Deduction on Home Loan Interest