Earning abroad? Here's how India will tax your global income
What's the story
Imagine basking on an Australian beach, your freelance payments pinging in, only to realise that the taxman back in India is waiting for his share too!
Earning abroad might feel like a financial win, but without knowing India's tax rules on foreign income, it could become a costly mistake.
This guide unpacks how India's Income Tax Act treats your global earnings, helping you stay tax-smart, penalty-free, and fully compliant.
Residential status
Know your residential status
In India, a person's tax liability hinges on their residential status: Resident, Non-Resident, or Not Ordinarily Resident.
Residents are taxed on global income, meaning foreign earnings are also taxable.
Residential status is determined by physical presence: exceeding 182 days in a financial year, or exceeding 365 days over the preceding four years and at least 60 days in that year.
Income categories
Taxable foreign income categories
For Indian residents, foreign income encompasses salaries earned abroad, income from house property situated outside India, capital gains on assets or securities held outside India, and income from other sources originating outside India.
Each category is subject to specific taxation rules under the Income Tax Act.
Proper classification of foreign income is crucial to ensure the application of appropriate tax rates and deductions.
DTAA
Double Taxation Avoidance Agreement (DTAA)
India has DTAA with many countries, which helps avoid double taxation on the same income.
Indian residents who pay tax on foreign income in a DTAA country can claim credit for taxes paid overseas against their Indian tax liability.
Exemption Method and Credit Method are major relief methods under DTAA, greatly reducing tax burdens.
Documentation
Disclosure and documentation
Maintaining proper documentation is crucial for smooth compliance with tax laws pertaining to foreign income.
Indian residents are required to disclose their worldwide income while filing their annual returns using Form ITR-2 or ITR-3, whichever is applicable.
Key supporting documents would be proof of residency status, evidence of taxes paid overseas if claiming relief under DTAA, bank statements indicating foreign incomes, and documents related to foreign assets, if any.
Compliance tips
Planning and compliance tips
Proactive planning is key to efficiently navigate taxes on foreign incomes.
You should consult a tax professional much ahead of the return filing due date to comprehend liabilities and strategize about legal tax-saving options.
Consider investments that provide deductions under the IT Act.
Declare all foreign incomes and assets on time when filing returns. This will help you prevent penalties for non-disclosure or misreporting.