Taxation Of Foreign Income In India
Companies resident in India are subject to Indian tax on their income, generally on an accrual basis, from all sources inside or outside India and whether or not remitted to India.
Branch income
The income of all foreign branches is taxed in India as part of the Indian company's worldwide taxable income. Similarly, the losses of all foreign branches are deductible in computing the worldwide taxable income. In computing the income or loss of a foreign branch, a deduction is generally allowed for all expenses incurred wholly and exclusively for the purpose of the business that are not of a capital or personal nature. Income is taxed whether or not repatriated. If the branch income incurs tax in the foreign country, credit is given in India to the extent of the lesser of the foreign tax paid or the Indian tax on the foreign income, either unilaterally or under treaty.
Foreign subsidiary income
Dividends of foreign subsidiaries when declared (and interim dividends when they are made unconditionally available) are included in the worldwide taxable income of the Indian company. Profits not distributed by the foreign subsidiary are not taxed in the hands of the Indian company. Treaties often provide for lower foreign withholding tax. No credit is given for underlying tax paid by the foreign subsidiary.
Liquidation proceeds
A distribution to an Indian company by a foreign subsidiary upon its liquidation is treated as dividends to the extent it is attributable to accumulated profits up to the date of liquidation. The balance is treated as a return of capital and taken into account in determining the capital gain or loss on the shares held.
Interest
Interest from foreign subsidiaries is fully taxable in the hands of the Indian company, with credit allowed for foreign tax withheld or paid, up to the Indian tax on the interest.
When an Indian businessman makes a profit or some other type of taxable gain in another country, he may be in a situation where he will be required to pay a tax on that income in India, as well as in the country in which the income was made! To protect Indian tax payers from this unfair practice, the Indian government has entered into tax treaties, known as Double Taxation Avoidance Agreement (DTAA) with 65 countries. Fortunately Dubai is not on that list.
You will get a relief under two methods
Exemption method – This ensures complete avoidance of tax overlapping.
* Tax credit method – This provides relief by giving the tax payer a deduction from the tax payable in India.
Taxing Foreign Income of Company (legalserviceindia.com)
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