If you are a resident in India and earn money outside the country, you need to understand how foreign income is taxed in India. This guide explains in simple terms how to report it, what forms you need, and how to claim foreign tax credit if you’ve already paid tax abroad. Don’t worry, we’ll walk you through it step-by-step.
In today’s global world, it’s common for Indian residents to earn income from foreign sources, be it through investments, overseas jobs, freelancing clients abroad, or interest income from international bank accounts. But along with the benefits of earning globally comes the responsibility to comply with Indian tax laws. Yes, even if your income is earned outside India, it could still be taxable in India.
As a resident in India, it’s crucial to understand how foreign income is taxed, how to report it correctly in your Income Tax Return (ITR), and how to claim foreign tax credit under Indian income tax rules.
Getting guidance from experienced chartered accountant firms in Gurgaon can make this process much easier and ensure you don’t miss any compliance steps.
This guide simplifies everything you need to know about taxation of foreign income, foreign tax credits, ITR filing, and compliance so you can stay on the right side of the law and avoid unnecessary penalties.
Let’s dive in!
In India, income tax is based on your residency status. If you are a resident in India, your global income is taxable in India. That includes money you earn outside India such as:
Even if you earn this income from foreign sources, you must pay tax in India on it. To make sure you follow the rules and avoid mistakes, it’s wise to get guidance from an experienced tax consultant in Gurgaon who understands both Indian and international tax laws.
According to the Income Tax Act, the taxation of foreign source income applies to Indian residents. Income tax rules are strict when it comes to foreign income of residents, so full disclosure is key.
Learn More: Input Tax Credit (ITC) Issues for Exporters with Foreign Expenses
You need to file your ITR (Income Tax Return) and include foreign income in Schedule FSI and foreign assets in Schedule FA. These schedules are part of the standard income tax return for residents with foreign income.
Include details such as:
This schedule helps the Income Tax Department understand your foreign source of income.
Report your foreign assets or income such as:
Disclosing your foreign assets is mandatory.
Read This: How Foreign Companies are Taxed in India: A Complete Guide
If you’ve already paid tax in a foreign country, India allows you to claim foreign tax credit so you don’t pay tax twice on the same income.
To claim this, you must:
This rule explains how Indian residents can claim a foreign tax credit and what documents are needed. Rule 128 of the Income Tax Rules makes it clear that credit can only be claimed for tax paid in a foreign country if it is also taxable in India.
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If you have savings or fixed deposits in a foreign bank, the interest income is taxable in India. Even if tax is paid overseas, you must report it and claim tax credit.
Any rental income from real estate outside India is also subject to taxation in India. You can claim standard deductions just like you would for Indian property.
Dividends from foreign sources and capital gains from selling assets like shares or property are fully taxable in India.
Must Read: Disclosures and Penalties of Foreign Assets in Income Tax Return
This process ensures you don’t pay more tax than necessary.
If you mistakenly paid more tax abroad than required, you may be able to get a refund of foreign tax from that country. However, this depends on their local laws.
Even if the income is paid in a foreign country, you must check if that source of income is taxable in India.
Remember, global income is taxable for Indian residents. So even if you earned it in the United States, UK, or Dubai, it must be declared.
Let’s say you work remotely for a US company and earn $30,000. They deduct $3,000 as foreign tax. Here’s what you do:
Handling foreign income in India may seem complicated, but it doesn’t have to be. Whether it's tax filing, claiming tax credit, or complying with income tax rules, staying informed and compliant protects you from penalties.
If you're unsure, always talk to tax experts who can guide you based on your specific situation.
Stay compliant. File right. Pay right.
Yes, for residents, income earned outside India is taxable in India.
Yes, if you meet the conditions of Rule 128 and file Form 67.
It’s income you earn from outside India like a salary, rent, dividends, or capital gains from foreign sources.
Use Schedule FSI for foreign income and Schedule FA for foreign assets.
Let DSRV India guide you. With 35+ years of experience in taxation and foreign income reporting, our expert Chartered Accountants can assist you in filing your ITR, claiming foreign tax credit, and ensuring you're fully compliant with Indian income tax rules.
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