Income received from foreign country

This query is : Resolved

vipul bhatia (Querist)
Follow

15 December 2012 I have join a person having office in foreign country.The work given by him can be categorize as an work contract as payment is made by him when i complete a certain part of work.If on estimate basis my income goes around 250000 in a year, then whether it is taxable in India as Business & profession or under some other head and whether he is liable to deduct any tax.

@VaibhavJ

@VaibhavJ (Expert)
Follow

15 December 2012 hi

can you pl give clarity on type of work done by you.

Thanks

vipul bhatia

vipul bhatia (Querist)
Follow

19 December 2012 The work can be categorized as an "search engine optimization"...(known as SEO)

Upgrade to CAclubindia Pro. Subscribe Now!

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
Follow

31 July 2024 Income received from a foreign country, such as payments for services rendered (e.g., Search Engine Optimization or SEO work), is taxable in India based on the residential status of the taxpayer. Here’s how to handle this situation:

### **Taxability of Income:**

1. **Residential Status:**
- **Resident in India:** If you are a resident in India for tax purposes, you are liable to pay tax on your global income, including income from foreign sources.
- **Non-Resident:** If you are a non-resident, you are only liable to pay tax on income that is accrued or received in India or deemed to be received in India.

2. **Head of Income:**
- **Business & Profession:** Income from work or services performed, including SEO services, will generally be considered under the head “Profits and Gains of Business or Profession” if you are self-employed or running a business.
- **Income from Other Sources:** If the work is done as a one-time contract and doesn’t constitute a business, it could be treated as “Income from Other Sources,” but typically, continuous work or service agreements are classified under business income.

3. **Tax Deduction at Source (TDS):**
- **Foreign Payments:** Generally, foreign payers are not required to deduct TDS for services rendered unless the income is taxable in their jurisdiction. However, it’s important to verify the specifics of any tax treaties or agreements between India and the country where the payment is received.
- **Tax Compliance:** Ensure that you comply with Indian tax regulations and report all foreign income. You may need to pay advance tax or self-assess tax on this income.

### **Filing Tax Returns:**

1. **Declare Income:**
- **ITR Form:** Report this income in your Income Tax Return under the appropriate head. If it’s business income, use ITR-3 or ITR-4 (if opting for presumptive taxation under Section 44ADA). If it’s treated as income from other sources, use ITR-1 or ITR-2, depending on your total income.

2. **Conversion Rate:**
- **Income Conversion:** Convert your foreign income into Indian Rupees (INR) using the exchange rate prevailing on the date of receipt or an average rate for the financial year as prescribed by the Income Tax Department.

3. **Foreign Tax Credit:**
- **DTAA:** If any tax was deducted in the foreign country, you might be eligible to claim a foreign tax credit under the Double Taxation Avoidance Agreement (DTAA) to avoid paying tax twice on the same income.

### **Steps to Follow:**

1. **Maintain Documentation:** Keep records of all contracts, payments received, and any tax deducted or withheld.
2. **File Return:** Include the foreign income in your tax return for the relevant financial year.
3. **Consult a Professional:** For precise compliance, including any applicable tax treaties or special regulations, consult a tax advisor or Chartered Accountant.

### **Example:**

- **Income Earned:** Assume you earn $3k for SEO services.
- **Conversion Rate:** If the exchange rate is 75 INR/USD, your income in INR is 3K * 75 = 2.25L INR.
- **Tax Reporting:** Include this 2.25L INR in your ITR as business income or income from other sources, depending on your situation.

**Summary:**

- Income from foreign contracts, such as SEO work, is taxable in India if you are a resident.
- It should typically be reported under “Profits and Gains of Business or Profession” if it constitutes regular business activity.
- Foreign clients generally do not deduct TDS, but you must report and pay tax on this income in India.
- Convert foreign income into INR and ensure proper reporting and compliance with Indian tax laws.

**Note:** For personalized advice and to ensure full compliance, consult a tax professional or Chartered Accountant.