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Income Tax Filing for Foreign Nationals Research Team | Posted On Monday, January 27,2020, 04:20 PM

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Income Tax Filing for Foreign Nationals



A citizen of a different country residing and working in India is liable to pay taxes as per the provisions stated in the Income Tax Act, 1961. Income earned by a foreign national within India is taxable under law and is implemented regardless of his/her status as a residence or citizen of the country. However, the individual can file for tax returns if he/she earns less than a minimum exempted amount.

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Types of Taxable Income for Foreign Nationals:

Foreigners who reside in India must and are liable to pay taxes must pay taxes on the following types of income:

  • Income from employment: Taxable income in this category includes income from salary, wages, allowances as well as any other compensation services rendered in India. Taxable income also includes income tax paid by the employer on behalf of the individual, it also encompasses facilities like car or chauffeur provided by the employer.
  • Non-employment income: Foreign citizens can maintain foreign accounts and receive their salary outside India provided their taxes are paid in full for the income they earn within India. Thus foreign nationals must pay taxes on the income gained through investments abroad sent directly to a bank account in India, any capital gains ( both long-term or short-term) in India, royalties received from Indian entities and interest payments on infrastructure debt funds in India.

See Also: What are the Steps Involved in Tax Planning?

How to Do Income Tax Filing for Foreign Nationals?

An income earned by a foreign national while his service tenure in India is taxable as per the rules of the ITA irrespective of his citizenship or residential status. This payment can be generated either through a job or through the services rendered. The income tax is collected through TDS and foreign nationals can file for returns if their income is less than a minimum exempted amount.

Factors That Determine the Taxability of Foreign Nationals:

Usually, foreign nationals have to pay taxes based on their residential status which are as follows:

  • Individuals who qualify as Indian nationals are liable to pay taxes on their overall income. This may include the money earned from employment in India or the sum of income earned throughout the world. The income also includes payments or remuneration received from their own country.
  • Individuals who qualify as non-residential Indians or people who qualify as residents but not ordinarily resident (RNOR) must pay their taxes only on the income that they earn in India as per the Indian Income Tax Act, 1961.

In India, an individual income is taxed as per the income tax slabs he/she belongs to. The taxes are levied based on the residential status of the individual and his income level. The non-employment income is also liable to be taxed at a variable rate depending on the income type. Thus foreigners fulfilling the above-mentioned criteria are liable to pay taxes on their incomes as per the provisions of the Income Tax Act, 1961.

See Also: Last Minute Tax Planning: What You Should Do?

Double Tax Avoidance Agreement:

Foreign nationals can avail certain benefits with respect to taxation within India. They can avail benefits through the Double Tax Avoidance Agreement (DTAA). The DDTA is an agreement between two nations that helps foreign nationals to avoid paying taxes on the money he earns. Thus foreign nationals, whose incomes are liable to be taxed in India as well as in their own country, can avail the DTAA as a way out of being doubly taxed on the income he/she earns.

What are the Documents Required by Foreign Nationals when Filing Income Tax Returns in India?

Foreign nationals are required to submit the following documents while filing income tax returns in India:

Form 16: This form can be collected by the individual filing for taxes from his employer. It contains information that includes information about an individual’s income, deductions made from the individual’s income during the financial year etc.

TDS certificate: The TDS certificate is also identified as Form 16A. The form can be acquired from financial institutions. It mainly contains details of the taxes that have been deducted on other income earned by the individuals like investments or a side business etc.

See Also: Tax Exemptions To Invest Wisely

Bank statements: Bank statements are important documents for foreign nationals while applying for income tax returns. Thus they are required to provide the details of all transactions made throughout the financial year. These transactions include investments, income accrued, expenditures etc.

Details of property: Properties or assets sold within the country are liable to be taxed as capital gains tax. Details of the sale of property or assets must be mandatorily presented while filing for tax returns.

Investment proofs: If a foreign national has made any type of investments in India, then they are liable to provide proof of the same. The step is necessary if the investments do not feature in form 16.

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