SENTHIL SELVENDRAN (chartered accountant) (201 Points)
29 June 2015Hi
One of my client who was working in Newzealand 18 years ago. He earned and invested some portion of amount in Deposit accounts. Now he withdrawing his deposit so that interest portion attracting tax in that country. Will the earned interest taxable in india? if yes is any double taxation benefit is available? No he is a resident.
Atul
(Others)
(71 Points)
Replied 29 July 2015
DISCLAIMER: I AM NOT A TAX/ACCOUNTING PROFESSIONAL. THE BELOW IS BASED ON WHAT I UNDERSTOOD OF THE SECTION 90 RELIEF.
I think, the person would be entitled to section 90 relief. Broadly speaking, the relief amt = minimum (A, B) where,
A = tax paid for that income in the foreign country, and,
B = tax that may have to be paid in India for that income (using average tax rate for that person's situation).
More specifically, B = ((total india tax including tax computed on the foreign income) / (total income including the foreign income)) MULTIPLIED BY (foreign income amt).
Example: say, you earned 2000 USD interest in the US. You paid tax @ 30% rate = 600 USD. Your total income (India + US income) after deductions is Rs.10 lakhs (say). Tax on this works out to Rs.125000 at today's rates. So, your average tax rate is 125000/1000000 = 12.5%. Computed tax on the foreign income is 12.5% of 2000 USD which works out to 250 USD or Rs.16000/ ( assuming 1 USD = 64 rupees). The tax you paid in foreign country was 600 USD or Rs.38400/ which is more than the corresponding computed tax in India. SO, the section 90 relief amt = minimum (Rs.16000, Rs.38400) = Rs.16000/
You show tax computation including the foreign income and then claim section 90 relief as computed above. In effect, if the foreign tax you paid is more than the computed india tax on the foreign income, Then, you do not have to pay the computed india tax (since you already paid more tax on that income). Conversely, if computed india tax is more, then you get sec 90 relief = foreign tax paid on that income. And, then, you need to pay the difference between the foreign tax and the computed india tax.
CAclubindia
