Here’s what you should do if you work from home for a foreign firm and are unsure if you need to pay income tax. To ascertain your tax due, first examine your resident status in India, any tax deducted at source (TDS), and the Double Taxation Avoidance Agreement (DTAA). Submit Form 67 (foreign tax information), if necessary, and pay advance tax or self-assessment tax when all requirements have been met (before ITR).
Recently, a social media user who works from home for a European corporation brought attention to the problem. He said that while the business sends him his paycheck via direct bank transfer, TDS is not taken off. The user sought advice to comply with tax rules.
To determine if you must pay tax on your overseas wage, read this.
Determiners of Income Tax Liability
The individual would need to submit income tax returns since he works from home for a foreign company, utilizes Indian resources (electricity, internet, telephone, etc.), and earns pay.
No matter the individual’s citizenship status, if a person who resides in India performs a service utilizing resources and assets that are physically or virtually located inside the Indian territorial limit, then the revenue obtained using those resources will be taxed.
The amount of income tax that a person must pay depends on two things.
Source of Income: The individual should verify the geographic area and the location of the resources or facilities where the work was done.
Residential Status: To ascertain if he will have to pay income tax, the person must look up his resident status. The person’s tax obligation may alter based on where he physically resides in the nation since his residence status might change.
Tax experts have recommended people validate their residential status and as per that they shall furnish the income tax no matter whether they make income through an Indian or foreign employer.
The next step is to pay the income tax, though the exact amount of his tax due may vary.
What is the Method to Check the Income Tax Liability?
Verify for the Double Taxation Avoidance Agreement (DTAA): Proceed to the website of the income tax department and see if your employer’s country has secured a DTAA agreement with India. Do not worry If it has not signed a DTAA, you are still protected by Indian tax rules.
Tax experts mentioned that DTAA permits an Indian resident to prevent double taxation. Still, if there is no DTAA agreement, “then the deduction can be claimed from the Indian income-tax at the tax rate of India or the other country, whichever is lower, or at the Indian tax rate if both are equal.”
Verify for the TDS deduction- tax expert suggested that “If a country has not signed a DTAA with India, it is still possible to deduct TDS (by the foreign firm) as per the Indian tax regime,”
Additionally, Tax Deducted at Source is not required if a nation and India have a bilateral trade agreement (DTAA). It is due to the company should be registered in India to deduct TDS.
Therefore, find out if the foreign firm is registered in India from its HR and legal departments, and if so, question them about the TDS deduction. No TDS was taken in the case of the social media user.
What is the Method to Furnish the Income Tax?
Step 1- It consists of verifying the factors for the payment of income tax
Step 2- It consists of learning the complaints prior to furnishing the tax
Step 3- Filing tax post acknowledging all the facts.
- It will be taxed at the same rate and in the same slabs as income received in India.
- The taxpayer may claim a credit for any taxes paid in a foreign nation that was subtracted, provided that they follow the rules. “If no taxes are deducted abroad, then he has to pay the full tax in India before filing his tax return,” the tax expert stated.
- The annual tax payable should be paid in full by adhering to the timetable for advance tax payments. “However, if such advance tax has not been paid, one can still make the payment in the form of self-assessment tax before filing his return,”
- Tax experts suggested that before submitting tax returns, taxpayers fill up “Form 67” with information on their overseas taxes and submit it. Foreign taxes may be fully or partially credited.
Jain continued by saying that even if there isn’t any additional tax liable to be paid in India owing to foreign taxes, one must still report the income in their tax return and not treat it as exempt.
By using the credit technique, India abolished double taxation in the majority of DTAA treaties. When taxing such income in India, enables the Indian resident to claim a credit for taxes paid in the nation of origin.
