If you reside in India and get an income out of a foreign employer, you may be curious about how taxes work. You pay tax in India on your global earnings as a citizen. This means all cash you make, in India or a different nation is governed by Indian Income Tax rules. This blog will explain the fundamentals so you can understand your tax obligations in such cases and scenarios.
Factors Determining Tax Liability
Two primary factors decide whether you must pay taxes on your foreign salary:
1. Source of income
The source determines tax liability. It depends on:
- Where the job is performed: In case you work from India utilising its resources even when your employer is abroad the income is deemed sourced in India.
- Location of resources utilised: This particular income is taxable in India in case you use Indian assets or facilities for your work.
2. Residential status
Your residential status affects your taxes. This status is variable and may differ from year to year based on:
- Physical presence in India: How many days you physically spend in India during a financial year.
- Residential history: Your residential status over the prior ten years also factors in.
In case you happen to be a resident of India, you pay taxes on your earnings – whether it’s earned out of an Indian company or a foreign employer.
Imagine you work for a US company but you reside and work at home in India. Your salary goes into your Indian bank account. In this particular instance, even though your employer is foreign, you’ll pay Indian taxes on your salary.
Tax Deduction at Source (TDS)
Indian tax regulations point out that your employer should impose taxes at the source (TDS). This extends even when your employer is outside India. But when your overseas employer doesn’t charge TDS, you pay your taxes yourself.
Advance Tax Payment
When your employer doesn’t remit TDS, you owe advance tax. The schedule for paying advance tax is the following :
| Date | Payment Requirement |
| June 15 | Pay 15% of your tax obligation |
| September 15 | Pay 45% of your taxable income |
| December 15 | Pay 75% of your taxable income |
| March 15 | Pay the full amount of your tax liabilities |
Self-Assessment Tax
Also, you could pay your taxes as self-assessment tax. This is typically accomplished when you file your income tax return. Any delay or even non-payment is going to lead to fines.
Exemptions of Taxes
There are particular instances where you might qualify for tax exemptions:
Employees of United Nations & Similar Organisations
In case you work for the United Nations or any of its agencies, your salary is exempt from Indian income tax even in case you reside in India. This particular exemption extends additionally to many other international organisations including the Red Cross, the Asian Development Bank among others.
Double Taxation Avoided
India has arrangements with numerous countries to avoid double taxation. What this means is you won’t pay twice taxes on a single income. In case you paid taxes in the foreign nation already, you might receive a tax credit or exemption in India. Without that agreement, you could claim exemptions under Section 91 of the Income Tax Act.
Government Allowances for Foreign Services
In case you work for the Indian government and are posted overseas, your allowances for overseas duties are not taxed. For instance, extra allowances you get if you work at an Indian embassy abroad aren’t taxed.
Technical Cooperation Programs
If you are employed by a foreign company on a project under an Indian government technical cooperation plan, your salary is totally tax free. This is applicable in case the Indian government and the international government agree on the project.
How To Calculate Your Taxable Income
This is how to calculate taxable earnings from a foreign salary:
- Convert Foreign Salary to INR: First convert your salary in foreign currency to INR. Make use of the exchange rate on the day you get the salary.
- Add Other Income: Add this to any other income – interest, rent income, or any other income.
- Deduct Exemptions & Deductions: Add any exemptions or deductions you can obtain. This includes house rent allowance exemptions, Section 80C deductions (for example for investments in PPF, EPF, etc.) along with other applicable deductions.
- Apply Tax Rates: Lastly, divide your taxable income by the appropriate tax rates to figure out your general tax liability.
Filing Your Tax Return
When submitting your tax return, be certain to:
- Report all income: Include all your income – foreign and domestic.
- Claims Deductions: Claim all eligible deductions and exemptions.
- Pay Due Taxes: Pay remaining taxes after TDS and advance tax payments.
Importance of Proper Compliance
Avoiding penalties and legal issues requires adequate tax compliance. Make sure to:
- Keep accurate records: Keep records of your earnings and taxes paid and deductions claimed.
- Pay taxes on time : Stick to the advance tax plan and pay your taxes promptly to stay away from penalties.
- Seek professional help: If you find the procedure complex, talk to a tax professional like StartupFino.
Wrapping Up
Understanding how to compute taxes on salary received in foreign currency is complex yet important to Indian tax law. Consider your residential status, income source and exemptions. Following the guidelines and paying taxes on time will help ease the tax filing process.
FAQs
Is salary in foreign currency taxable?
Yes, in case you’re an Indian resident, your salary in foreign currency is taxed as a part of your worldwide earnings. You need to report it and also pay taxes as per Indian income tax laws.
Do I pay tax in India on money received from abroad?
Yes, you pay tax on any earnings received from abroad in case you’re a citizen of India. This includes salaries, gifts along with other remittances.
Is foreign income received in India taxable?
Yes, foreign income obtained in India is taxable as a resident. It needs to be recorded in your income tax return and also taxable under Indian tax rules.
What tax will you have to pay out on foreign transactions?
Taxation on foreign transactions is dependent on the kind of income and your general tax liability. Generally, income taxes range from 5% to 30% according to income slabs. TDS might also apply.
How much cash can I get tax free from overseas?
In case you get a present, all gifts over 50,000 from non-relatives are taxed.
Can I receive cash from overseas in my account in India?
You can easily obtain money from overseas within your Indian bank account. The authorised bank can credit foreign inward remittances directly into your account through electronic modes like NEFT, IMPS, etc.
