Today, as many companies in India and overseas are opting for work from home, you have the flexibility to choose and accept assignments from overseas and work for foreign companies. This also means you can get paid from abroad for your services. So, if you have an income source from abroad, you may be confused about the tax treatment in India.
You must know that the income you earn from abroad or outside of India, as per the Indian tax laws, is taxed the same as the income you earn in India. However, since the revenue sources are from another nation, chances are high that you may have to pay taxes in that nation as well.
This blog discusses how you can calculate tax on income earned abroad.
Know about the applicable TDS (Tax Deducted at Source) in the country of employment
Like the TDS in India, the foreign government may also have specific tax rules when the employees transfer money from their country to foreign countries like India. Hence, when you sign the agreement with your employer, you must be aware of the withholding rate that will be applied to your income.
For example, if you are employed with a US company, they may deduct a particular percentage of tax on payments made to you as per American tax laws. This withholding rate could range from 10 to 20%, depending on the type of service you offer.
Exemptions for individuals who have paid foreign taxes
If you have been taxed in a foreign country where you are employed or get your income from, you would be eligible to get an income tax deduction in India. For example, for taxes withheld in a foreign country, you can claim exemptions in India. Thus, such tax relief provisions granted under Indian Income Tax laws help you avoid paying double taxes on the same income.
Tax exemptions for individuals employed with the UN (United Nations) and its various associated agencies
As per the 1947 UN Privileges and Immunities Act, any individual who is directly employed by the UN or its associated agencies is exempted from paying taxes on any kind of income against their salaries received from the organisation, even if they are Indian residents and they render their services within geographic boundaries of India. Also, former UN employees who draw a pension from the UN are entitled to tax exemptions.
Tax implications on converting foreign currency into Indian Rupees
Many people tend to cover their earnings in foreign currency to Indian Rupees to get savings. However, you must know that the income tax regulations specify the exchange rate used for foreign exchange conversion. The Indian Tax Laws specify different tax rates for different types of income.
For example, if you earn a salary in foreign currency, you can convert it into INR using the SBI TT buying rate on the day when the salary is due or paid in advance.
Final Word
Now that you know the tax implications on income earned from abroad, do your due diligence and avail of the eligible exemptions to reduce your annual tax payments.
