Income Tax: How can NRIs stop double taxation in India?

The Non-Resident Indians, or NRIs, who keep overseas for no less than 182 days in a 12 months, are eligible to use for tax exemption of their nation of residence if they’ve already paid tax in India. To keep away from double taxation, India has entered into Double Taxation Avoidance Agreements (DTAA) with a number of nations.

In different phrases, this implies the NRIs can search exemption for tax paid in India whereas submitting the tax return within the different nation to keep away from paying tax twice.

READ MORE: Returning from abroad? This is how taxation works in case of NRIs

Let us perceive how DTAA prevents double taxation.

For occasion, if Mr Ajay Kwatra who stays within the UK has an curiosity earnings in India to the tune of ₹50,000. Because of various tax guidelines, allow us to assume the speed of tax is 10 % in India and 15 % within the UK. Because of the tax treaty, the UK will give tax credit score for the tax he paid in India.

In this case, his tax legal responsibility might be calculated as follows:

Interest earnings: ₹50,000

Tax paid in India: ₹5,000

Tax to be paid in UK: ₹7,500

Minus: Credit for tax paid in India: ₹5,000

Total tax due in UK: ₹2,500

However, it’s value noting that an NRI can search the advantages of DTAA after submitting the tax residency certificates (TRC) and different related paperwork.

READ MORE: Here’s how NRIs can commerce in Indian equities; Step by step information

Although tax is levied on the fee of 20 % (plus surcharge & cess) on the curiosity earnings acquired by an NRI in India, it will likely be charged at a decrease fee if India has signed the treaty with that nation.

However, to grow to be eligible to pay tax at a decrease fee, the taxpayer should submit a tax residency certificates, type 10F and PAN (Permanent Account Number).

The type 10F is a self-declaration by an assessee, declaring that he resided for greater than 182 days throughout that 12 months in a rustic with which India has signed a DTAA and therefore, he’s eligible for a decrease fee of taxation.

Also, the taxpayer can search tax credit score for the taxes paid in India whereas clearing his tax legal responsibility within the nation of residence.

READ MORE: NRIs pays utility payments utilizing Bharat Bill Payment System; All you’ll want to know

So, we will summarise that an NRI is supposed to pay tax in India for the earnings accrued right here however he can search exemption and could also be eligible for a decrease tax fee if there’s a double taxation avoidance treaty between India and the opposite nation. The underlying concept is to stop taxpayers from paying earnings tax two occasions on the identical earnings.

This story was first revealed on MintGenie and will be accessed right here. 

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