The Non-Resident Indians, or NRIs, who keep overseas for at least 182 days in a yr, 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: Getting back from abroad? That is how taxation works in case of NRIs

Allow us to perceive how DTAA prevents double taxation.

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

On this case, his tax legal responsibility will probably be calculated as follows:

Curiosity earnings: 50,000

Tax paid in India: 5,000

Tax to be paid in UK: 7,500

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

Complete tax due in UK: 2,500

Nonetheless, 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: Right here’s how NRIs can commerce in Indian equities; Step-by-step information

Though 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.

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

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

Additionally, 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 will pay utility payments utilizing Bharat Invoice Fee System; All it’s essential know

So, we are able to 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 instances on the identical earnings.

This story was first printed on MintGenie and may be accessed right here


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