Should you be paid income from overseas while living in India, you could worry about paying taxes in both nations. In these kinds of circumstances, double tax relief can be beneficial. It gets you out of paying taxes twice on the same income.
Let us easily break it apart.
Double Taxes: What are they?
Income obtained elsewhere causes double taxation.
- That country pays taxes on your income.
- India taxes your worldwide income as well since you live there.
You could find yourself paying taxes twice without double tax relief.
Double Tax Relief: Defined here
Double tax relief is one benefit provided by the Indian government to help stop double taxation. It allows you to credit another country for already paid taxes.
Two Categories:
- Relief under the Double Taxation Avoidance Agreement (DTAA)
- Relief under Section 91 of the Income Tax Act (should no DTAA exist)
1. DTAA Salvation
India has agreed on taxes with several countries. These treaties clear the income tax rules in both countries.
Advantages:
- Maybe you pay taxes only in one country.
- On the other hand, you might pay in both but get an Indian credit.
- Based on the type of income—salary, interest, dividends, etc.
2. Reversal under Section 91
Section 91 lets you seek double tax relief should no DTAA apply.
For example, in a country without DTAA, you earn ₹1 lakh interest. You pay taxes coming to ₹10,000. Paying ₹20,000 tax in India on the same income will credit ₹10,000.
How might one report foreign income in their Indian ITR and claim double tax relief?
- File Form 67 on the income tax portal before sending in ITR.
- Save records proving foreign tax paid, including tax slips or certificates.
Documents You Require:
- Foreign Country Tax Payment Receipt
- Form 67 (mandatory; for DTAA relief)
- PAN, passport, detailed information on foreign income
Mistakes To Avoid:
- Not completing Form 67
- Seeking relief with regard to exempt income
- Not fairly translating income into INR
Notes of Finality:
- Report your foreign income honestly always.
- Find out whether India has a DTAA with that country.
- Document overseas income using ITR-2.
- If the tax position is complicated, see a CA.