Taxation of Foreign Income of a resident taxpayer

As per the Income-tax provisions, a resident taxpayer needs to disclose global income in his Income-tax return. In short, income earned in India as well as income earned abroad is taxable for resident taxpayer. Incomes earned in India are required to be disclosed normally in Income-tax forms, however if taxpayer is having source of income outside India or any asset located abroad, then taxpayer needs to fill an additional schedule FA in his Income-tax form.

If taxpayer is non-resident then he needs to disclose only those incomes which are earned by him in India. Hence, residential status of a taxpayer plays a vital role to determine the taxation of income.

Click here to know about Residential Status.

Foreign source income may be of various forms which are as follows-

  1. If taxpayer has gone abroad for employment purpose, Salary received by him abroad shall be Foreign Income.
  2. If taxpayer opens a bank account abroad, Interest credited to this account shall be Foreign Income.
  3. While residing abroad, taxpayer received shares under ESOP (Employee stock option plan). He invests in Securities, Shares of companies listed abroad then all Dividends, Interests received from these Securities, Shares, etc. shall be  his Foreign Income.
  4. If taxpayer has acquired House Property abroad, however while returning to India he let out such property, then Rentals received from such property shall be Foreign Income.
  5. If taxpayer sells his foreign Capital Assets viz. Securities, Shares, House Property etc., then Capital Gain on such sale is also a Foreign Income.

E.g. – Mr. Niraj (age 28) was posted to Russia by his employer for some technical assistance. He was in Russia for 40 days during F.Y. 2014-15 after that he came back to India. He received Rs. 2,50,000/- as salary while in Russia whereas Rs. 12,00,000/- as salary in India.

He received Rs. 56,000/- as Dividend from Shares of companies listed in Russia and Rs. 8,000/- as Interest in his savings account held in Russia. He paid Premiums for Life Insurance Policies viz. Rs. 20,000/- (policy drawn abroad), Rs. 1,20,000/- (policy in India).

What is the taxable income of Mr. Niraj for F.Y. 2014-15?

Ans. :- Computation of income of Mr. Niraj for F.Y. 2014-15

Particulars Amount (in Rs.)
A.    Salary income-
Salary received in India 12,00,000
       Salary received abroad 2,50,000
B.    Other income-
Dividend from foreign companies 56,000
Interest from savings bank A/c. 8,000
C.   Gross Total Income [A+B] 15,14,000
D.   Tax saver deductions
Premium for life insurance policy (in India) 1,20,000
Premium for life insurance policy (abroad) Nil
Total deductions- 1,20,000
E.    Taxable (Total) Income [C minus D] 13,94,000

Click here to know about “Taxation of Non-resident Indians (NRIs)”.

Summary
Article Name
Taxation of Foreign Income of a resident taxpayer
Description
As per the Income-tax provisions, a resident taxpayer needs to disclose global income in his Income-tax return. In short, income earned in India as well as income earned abroad is taxable for resident taxpayer. Incomes earned in India are required to be disclosed normally in Income-tax forms, however if taxpayer is having source of income outside India or any asset located abroad, then taxpayer needs to fill an additional schedule FA in his Income-tax form. If taxpayer is non-resident then he needs to disclose only those incomes which are earned by him in India. Hence, residential status of a taxpayer plays a vital role to determine the taxation of income.
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myITreturn
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