Many Indians often pay tax as an NRI in the foreign country. The dilemma often catches them over pay or not to pay the income tax in India. This idea generally tosses in the mind of those non-residents who intend to resettle in India after your retirement abroad. However, they have surrendered their residency. This thought prompts them to think that they’re no more Indian citizens. So, they don’t have any liability to pay here as a tax. But indeed, it’s legally incorrect. The DTAA (Double Taxation Avoidance Agreements) is a bilateral treaty particularly constituted to tackle the income tax-based legalities of NRIs. What does DTAA state? As expanded above, this acronym stands for the Double Taxation Avoidance Agreements. It’s a bane of a treaty with one or multiple countries. Basically, it was evolved to deal with the double taxation issues. When a taxpayer pays income tax in the country of his residence, he doesn’t like to pay it in his hometown. So, he avoids paying it in the residence country. Let’s say, an NRI has paid taxes to the Australian government on the earned income from Australia. Legally, he has put off his liability in the foreign country. Now, he has decided to shift to India again after retirement. The question immediately grips his mind whether he should bring the funds (earned abroad) together with. Shall he pay the income tax again here, if he brings that amount here? Income Tax Law for NRIs: The NRI legal solutions are laid in the income tax law. Let’s have a cursory look over what it states on this income tax issue:
If you carefully go through, I have said that you must report about these foreign funds on your income tax return. It will state about your income, profits, losses and tax deductions to the Income tax authority here. Thereby, you can get rid of paying double tax on the same income earned abroad as referred in the DTAA. The NRIs won’t be taxed unless they qualify as “not ordinarily resident” in India. It completely depends on the aforesaid criteria. Once they get the exact idea about their status, then only the tax implication would be levied accordingly. What about liquidation of the restricted stock units (RSU)? The liquidation of the foreign stock units in India needs to be taxed. It’s what the DTAA treaty says. Simply put, the global income is taxable in India. Whether it is earned in the USA or Australia, the income earner has to report about his income, gains and tax during filing the income tax return. If you liquidate your RSUs, you will earn some capital gains. The Income Tax Act states any capital gain (whether short term or long term) is taxable. However, you might have paid tax in the foreign country. When you come here in India, you have to pay it again. But, you earn some credits for taxes that you have paid in the foreign country. You can claim for those credits when you go to pay tax for the Indian income tax authority.
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