28 April 2018
DTAA –Tax Credit I understand that tax credit can be claimed only in the country where a person is a tax resident, not where he is an NRI. For example, a Canadian resident is filing Returns for FY calendar year 2017 He will have to add to his Canadian income the Indian interest and rental income for period i.e. 1st April 2017 to 31 December 2017. But in India he will later again pay tax for same period 1st April 2017 to 31 December 2017 while filing Returns for FY 1st April 2017 to 31st March 2018. In other words, he pays tax twice for same period 1st April 2017 to 31 December 2017, i.e.in both countries. How does DTAA help when financial years are different as explained above? Second question is regarding non-withdrawn EPF balance. Interest is declared and credited by Govt. after March 31 2018. Will this interest be added in Canadian income for their Calendar year 2018?
28 April 2018
believe you are confusing yourself unnecessarily. when you include the Indian interest income to your Canadian income, you also include the corresponding tax credit to compute the foreign tax credit. The interest on EPF is also accounted for on accrual basis. You will have to check whether the same is exempt from taxation under Canadian tax code.
28 April 2018
Thanks for your prompt reply. May be I am old now (77 years) or my IQ is not good, but I do not understand. Kindly simplify your reply (you also include the corresponding tax credit to compute the foreign tax credit. The interest on EPF is also accounted for on accrual basis). I shall truly be grateful if you could paraphrase your reply to make me understand clearly in simple terms. Thanks Dc Bhargava
28 April 2018
first of all, I didn't mean either - a remark on age or the IQ. I just stated that you are worrying unnecessarily.
to put things in a simple manner:
1. With regards to the banking interest, assume your overall taxability for FY 2017-18 (in India) is 20% (ie tax payable for FY 2071-18 divided by the taxable income in India). Then when you include the interest from April to December in your canadian tax computation, you also take credit for tax paid at the same rate.
So if you include Rs 400000 as interest income earned in India, you also include Rs 80000 as the tax credit.
With regards to EPF, what I want you to check is whether this is taxable as per Canadian tax law. If it is, then you need to pay tax on the interest accrued till December. Since this income is exempt in India, there will be Zero tax credit available here.
29 April 2018
I am grateful to you for simplifying your answer. But please do not mind my asking you layman-like questions to understand better. 1. When you say "assume your overall tax liability for FY 2017-18 (in India)". I presume you mean I should estimate the liability (as actual liability will be known only after March 2018). 2.When you say "Then when you include the interest from April to December in your Canadian tax computation, you also take credit for tax paid at the same rate". I presume that by also taking credit for tax paid you mean in the Canadian tax computation. 3. I presume that for a Canadian tax resident, tax credit can never be claimed in India ( since I understand that tax credit can be claimed only in the country where a person is a tax resident, not where he is an NRI) Forgive me for my ignorance. EPF Interest. I understand that EPF interest on balance lying in account is taxable in India, in case a person has terminated his employment and not joined any where else and therefore ceases to contribute any more. Thank you. DC Bhargava
CAclubindia
