Double tax for NRIs if this form is not filed and foreign tax credit is not claimed
NRI) who has filed an income tax return (ITR) while claiming relief for income tax and double taxation, it's important to follow additional procedures. Failure to do so could lead to rejection of your claim by the tax department. If your claim for double taxation relief is rejected, you'll be impacted in two ways. First, you'll have to pay income tax according to the laws of the foreign country where you're a resident. Second, you'll also have to pay income tax in India.
To save NRIs from this trouble, the Indian government has signed a Double Tax Avoidance Agreement (DTAA) with more than 90 countries including USA, the UK, Korea and Taiwan.
How DTAA helps in avoiding double taxation of same income for NRIs
Sandeep Jhunjhunwala, Partner, Nangia Andersen LLP, says that many countries follow residence-based taxation systems, where the global income of residents is subject to taxation in such countries. «Hence given the same, NRI's resident country may also tax the income earned by NRI in India as part of their global income. Also, such India sourced income would be subject to tax in India as per Indian domestic tax law against which beneficial provisions, if any, under the Double Taxation Avoidance Agreement (DTAA) could be applied,» he says.
For example, global income of residents in the USA is subject to tax in the USA. Hence, the Indian income of an NRI who is a resident of the USA may be taxable in the USA at the rates applicable to such income to such NRI. «In this situation, NRI can claim the beneficial
