• 12 Feb, 2025

Tax On Foreign Source Income Of Resident Indian - Why It Matters [2025]

Do you receive your income from foreign sources? If yes, do you know the conditions of taxation on foreign income? The tax laws of India may feel overwhelming, however, we are here to navigate you through the process. As the top tax consultant in Gurgaon and chartered accountant firms in Gurgaon, we will help you understand Indian tax on foreign income and clear your queries. Keep reading to learn more about tax on foreign income of resident Indian:

Tax Implication On Foreign Source Income Of Resident Indian - Blog Poster

What Is Taxation of Foreign Source Income?

Foreign source income refers to income earned from sources outside India, such as royalties, interest, dividends, rental income, etc. However, if you receive the income directly within India, even if the source is from abroad, it will not be considered a foreign source income. The tax on foreign remittance in India depends on how the source of income is received. The foreign income of resident Indian needs to be earned outside India and also received abroad, which can later be remitted within India. 

Woman working with finances on the table. Tax on foreign income of resident Indian.

What Are The Different Classifications For Residential Status?

Is foreign income taxable in India? To answer such questions, you need to first understand the different classifications for residential status. The residential status in India is governed by Section 6 of the Income Tax Act, 1961. The taxability of your income and cross border transactions depends on your residential state. It will also determine factors like whether you need to keep note of regulations like FEMA Compliance. According to the act, you may classified as:

  • Resident and Ordinarily Resident (ROR)
  • Resident but not Ordinarily Resident (RNOR)
  • A Non-Resident (NR)

Recommended: Income Tax for NRI in India: Everything You Need to Know

1. Resident And Ordinarily Resident (ROR)

  • If an individual stays in India for more than 182 days in the current year, or
  • If an individual stays in India for more than 60 days in the current year and 365 days in total in the past year, or
  • If an individual has stayed in India over 730 days in the past 7 years (necessary),
  • If the individual has resided in India for 2 years in the past 10 years.

2. Resident but Not Ordinarily Resident (RNOR)

If the resident fulfils one criteria for ROR but does not meet the requirement of staying 730 days out of 7 years, then they are considered as RNOR. 

3. Non-Resident (NR)

  • The individual has stayed in India less than 182 days in the current year, or
  • The individual has stayed in India for more than 60 days but less than 365 days in the past 4 years. 

Tax Implications Based on Residential Status

1. Resident And Ordinarily Resident Indian

For Resident and Ordinarily Resident Indian, your global income will be taxable in India. Even if the source may be from another country, if you collect their income within India, then your income will be taxable in India. 

2. Not Ordinary Residents/Non-Resident Indian

If you receive your income within India, then it will be taxable in India. However, if you earn your income in another country, then it will not be taxable in India.

Read Also: The Ultimate Guide To Taxation Of Expatriates In India

Woman working with finances on the table. Tax on foreign income of resident Indian.

Double Taxation Avoidance Agreements (DTAA)

The Double Taxation Avoidance Agreement (DTAA) relieves taxpayers in India from paying taxes twice in two countries. This allows you to claim relief from tax paid on foreign income within India. Therefore, you can avoid double taxation under such circumstances.

Foreign Tax Credit

Foreign Tax Credit is available if your income is taxable in a foreign country and also in India. This can be claimed under provisions 90 and 91 of the Income Tax Act. You will be required to fill up form 67 for such purposes. This allows you to claim credit if your income is taxable in a foreign country and India. 

Read More: Cross-Border Transactions And Tax Controversies in India

Frequently Asked Questions (FAQ)

Find answers to complex queries on tax implications on foreign source income of resident Indian. If you have further queries on taxation laws such as GST, then you can reach out to our leading GST consultant in Gurgaon.

What is the taxation of foreign source income for a resident Indian?

The taxation of foreign source income for a resident Indian is governed by the Income Tax Act. As per the provisions, a resident Indian is liable to pay tax on their global income, which includes any income from foreign sources. This means that regardless of where the income is earned, it is subjected to Indian tax obligations. The tax rate applicable will depend on the income bracket of the individual and the nature of the income.

How does double taxation work for resident Indians?

The double taxation prevents resident Indians from paying taxes twice from two different countries. This means when the same income earned in a foreign country, it is taxed both in the countries although the individual is residing in India. To mitigate this, India has entered into various double tax avoidance agreements (DTAA) with other countries. These agreements allow individuals to either reduce or eliminate the tax liabilities.

What are the implications of foreign income in India?

The tax implications of foreign income in India are that all residents must report their global income in their income tax returns. This includes income from foreign sources like dividends, interest, and capital gains. The failure to report this income on your ITR filings can lead to penalties and legal repercussions. Moreover, understanding the taxation of foreign income can help you to to effectively plan your finances while also remaining compliant with the Income Tax Act.

What is the taxation of foreign source income for a resident Indian?

The taxation of foreign source income is important for resident Indians, because it is an essential component under the Income Tax Act, 1961. Under this act, all income earned by a resident, whether from domestic or foreign sources, is subject to tax in India. This means that if you are an Indian resident who earns income from foreign sources, it is considered taxable in India and needs to be reported by you in the income tax return.

What is a foreign tax credit and when can it be claimed?

The foreign tax credit allows Indian residents to reduce their Indian tax liability. If the amount of tax paid in a foreign country on foreign source income is taxable by both countries, then you can claim it during your Income Tax Returns. To claim the foreign tax credit, you need to proof as a taxpayer. This will ensure that the tax paid in the foreign country is included in their taxable income in India.

Are there any exemptions for foreign income in India?

Yes, your foreign income may be exempt from taxation in India. For instance, if you earn your income from foreign sources, and you receive it abroad, then it may not be subject to tax in India. However, it is crucial for you to review the specifics of the Income Tax Act and Double Taxation Avoidance Agreements to determine whether you income is taxable in India.

Conclusion

Taxation of foreign source income can feel complex, however, our laws in India have made sure to simplify the process. It is important to note the classifications of your residential status before you pay your taxes in India.

Struggling To Pay Taxes On Foreign Source Income?

Reach out to our tax consultants in DSRV India. We will simplify the process and personally guide you through every query. 

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