Custom Duty and Import Duty in India

Custom Duty in India

Custom Duty is levied when goods are transported across borders between countries. It is the tax that governments impose on export and import of goods. The tax imposed on the import of goods is known as the import duty. Whereas, the tax imposed on the export of goods is known as the export duty. Customs Duty is beneficial for many reasons. For instance, it ensures a country’s economic stability, jobs, environment, among others. It regulates the movement of goods in and out of the country. It keeps a check on restricted items.

In the past few months, the government of India brought a major change in the tax systems of the nation. They introduced GST (Goods and Services Tax), a new tax collection system, which is a destination-based tax, which implies that the consumers are liable to pay tax when they use any goods and services.

GST has three categories –

  1. CGST (Central Goods and Services Tax),
  2. SGST (States Goods and Services Tax) and
  3. IGST (Integrated Goods and Services Tax).

Both CGST and SGST are applicable on the intra-state transactions whereas the IGST is applicable on the inter-state transactions. If the business is in the union territory, then UTGST will apply in place of SGST. The custom duty is now replaced by IGST, which means that instead of the custom duty, IGST tax is applicable (along with other applicable customs duties) on every import and export of goods and services. Let us understand IGST tax better.

New GST Registration
Need help with your GST Registration? We can help you out.
[Rated 4.8 stars by customers like you]
New GST Registration
Need help with your GST Registration? We can help you out.
[Rated 4.8 stars by customers like you]

IGST: GST for Importers

Earlier, the tax system was complex and custom duty was levied to export and import goods and services. Multiple taxes such as countervailing duty (CVD), basic custom duty, anti-dumping duty, and safeguard duty were imposed on every import of goods and services. Under GST, these multiple taxes have been replaced by just one tax known as IGST (Integrated Goods and Services Tax). Only the integrated tax and the basic customs duty will be chargeable on the import of goods.

Import of goods refers to bringing merchandise into India from anywhere outside of India as per the IGST Act 2017. All the imports will be regarded as inter-state supplies and integrated tax will be imposed on them along with other applicable customs duties.

Calculation of IGST

GST can be calculated simply by multiplying the Taxable amount by GST rate. One must know that the tax on goods is imposed as per the size, mass, and extent of the imported and exported goods. The IGST tax for imports will be received by the State where the goods or services are consumed and not by the state where they are manufactured. Mentioned below is an example of the calculation of IGST on the import of goods:

For example,

The assessable value of an imported item is INR 10000/-
Basic Customs Duty = 10%
Integrated Tax Rate = 18%
The taxes will be calculated as follows:
Assessable Value = INR 10000/-
Basic Customs Duty = INR 1000/-
The value to impose integrated tax = INR 11000/- (10000 + 1000 = 11000)
Integrated tax = 18% of INR 11000 = INR 1980/-
Sum of Taxes = INR 1000 + INR 1980 = INR 2980/-

In addition to the above IGST, cess as per the GST Cess Act, 2017 may also be applicable on the goods. In such a case, the cess will be collected on the value taken for imposing the integrated tax. According to the example given above, the cess will be calculated on INR 11000.

Importers will not be liable to pay integrated taxes at the time of moving of commodities from a custom station to warehouse.

Input Tax Credit

Input Tax Credit under GST means the credit of input tax paid on import/purchases. A registered importer can claim the credit of the IGST imposed on him as the input tax credit under the GST system. The importer can offset the same input tax credit against the tax on the outward supply of goods. However, the Basic Customs Duty (BCD) paid will not be allowed to be claimed as the input tax credit. Along with the input tax credit, the importer can also benefit from the GST Compensation Cess before transmitting it to the ones in the supply chain. It is compulsory for the importers to mention the GSTIN (GST Registration Number) in the Bill of Entry in order to get the input tax credit of GST Compensation Cess and IGST.

Calculate Input Tax Credit online: ITC calculator
Input Tax Credit under GST means the credit of input tax paid on purchases. ITC can be used to set of against the CGST, SGST and IGST outward tax liabiliy.
Explore
Calculate Input Tax Credit online: ITC calculator
Input Tax Credit under GST means the credit of input tax paid on purchases. ITC can be used to set of against the CGST, SGST and IGST outward tax liabiliy.
Explore

What is the Import of Service under GST?

Import Of Service

Import of services as per the IGST Act 2017 means the supply of any service where:

  1. The supplier of service is located outside India
  2. The recipient of service is located in India, and
  3. The place of supply of service is in India

As per the provisions of Section 7(1) (b) of the CGST Act, 2017, import of services with consideration whether or not in the course or furtherance of business, will be considered as supply. In simple terms, the services that are imported without consideration will not be considered as a supply. However, the business test is not obligatory for the imported services to be deemed as a supply.

Import of services by a taxable person between related entities in the course or furtherance of business will be treated as supply, even if it is made without any consideration. Thus, import of some services by an Indian branch or foreign subsidiary from their parent company, in the course or furtherance of business, even without consideration, will be a supply and shall be subject to GST.

OIDAR Services

OIDAR services or Online Information and Database Access or Retrieval Services attract GST. Persons providing OIDAR services should mandatorily acquire GST registration. Also, a person who is importing services will be liable to pay tax on a reverse charge basis. However, in respect of the import of online information and database access or retrieval services (OIDAR) by unregistered, non-taxable recipients, the supplier located outside India will be responsible for the payment of taxes. The supplier will either have to take registration or assign a person in India for paying the taxes.

Supply to SEZ

Supply of goods or services or both to a Special Economic Zone Developer or an SEZ unit shall apply as inter-state supply and will be subject to levy of IGST.

GST Number Search: Verify GST Number or GSTIN online
Enter GST number or GSTIN (GST Identification Number) and verify GST details online. GST Number or GSTIN is a unqiue 15 digit number allotted after GST Registration.
Explore
GST Number Search: Verify GST Number or GSTIN online
Enter GST number or GSTIN (GST Identification Number) and verify GST details online. GST Number or GSTIN is a unqiue 15 digit number allotted after GST Registration.
Explore

GST for Exporters

Before GST was introduced, duties were imposed even on the export of goods and services. However, as per the new tax system, the export of goods and services from India to any other place outside the country are to be treated as ‘zero-rated supplies’. This means that no GST is applicable for the exporters. The registered taxable individuals that are exporting goods or services to places outside the country can claim refund.

FAQ

How IGST credit can be used?

According to the tax offsetting rules under GST, IGST credit needs to be used first to offset IGST tax liability. Whatever IGST credit is left can be used against CGST liability, then against SGST liability (in that order).

What is zero rated supply under GST?

Under GST, exports and supplies to SEZ are zero rated as per Section 16 of the IGST Act, 2017. By zero rating, it is meant that the entire supply chain of a particular supply is tax free, i.e., there is no burden of tax either on the input side or output side.

Partition of HUF

Hindu Undivided Family, commonly known as HUF is a separate entity from its members for the purpose of Income Tax. It is is treated as a ‘person’ under section 2(31)​ of the Income-tax Act, 1961 . The term is defined under the Hindu Law as a family that consists of all persons lineally descended from a common ancestor and includes their wives and unmarried daughters. So basically a Hindu Undivided Family is not created by any Act but by status. Partition means ending the status of Joint Hindu family. Partition of HUF can be of two types under Hindu Law i.e. total and Partial.

Meaning of Partition

Partition means division of property. Under Hindu Law the Joint Family status comes to an end when there is division of property among the members and joint ownership of property comes to an end. The division will be such as that the share of each member will be determined physically. Further, a division of income from any property, without physical division of such property does not amount to partition.

Types of Partition

Partition under Hindu Law, can be total or partial.

  • Total or Complete Partition: Assets of HUF are physically divided. Further, all the members cease to be members of the HUF. And all the properties cease to be properties belonging to the said HUF.
  • Partial Partition: Partition could be partial also with regards to the persons constituting the HUF, or the properties belonging to the HUF, or both. It may be partial vis-à-vis members, where some of the members go out on partition and other members continue to be the members of the family. Partial partition can be specific too where the property is divided between members and the rest of the property continues to be the HUFs property.
New PAN Application for HUFs
Expert Assisted New PAN Application for Hindu Undivided Family (HUF).
[Rated 4.8 stars by customers like you]
New PAN Application for HUFs
Expert Assisted New PAN Application for Hindu Undivided Family (HUF).
[Rated 4.8 stars by customers like you]

Right to claim Partition of HUF

Under the Hindu law, the partition of a joint Hindu family may take place at the instance of the following persons:

  • A coparcener*
    • Co-parceners refers to two or more persons sharing an inheritance or joint heirs of a property. These coheirs are called “Co-parceners”.
    • HUF consists of co-parceners (who are family members) and the distant relatives, called members of HUF (e.g. brother-in-law, sister-in-law, etc.,).
    • Co-parceners are the family members and it consists of four levels of lineal descendants including the first male ancestor.
  • A son in the womb of his mother at the time of partition of the property
    • A son in his mother’s womb is treated in law in existence and is entitled to re-open the partition to receive a share equal to that of his brothers.
  • Female sharers cannot demand a partition. However, are entitled to get their share when the joint family property is actually divided on partition.
    • Mother gets equal share if there is partition among sons after death of father,
    • Wife gets a share equal to that of a son at the time of partition between father and sons.
  • Daughters have the same rights as sons to reside in and to claim for partition of the parental dwelling house.
Ask an Expert (Income Tax)
Talk to an expert via call, whatsapp or messages. Ask questions about tax returns, applicability & compliance etc.
[Rated 4.8 stars by customers like you]
Ask an Expert (Income Tax)
Talk to an expert via call, whatsapp or messages. Ask questions about tax returns, applicability & compliance etc.
[Rated 4.8 stars by customers like you]

Procedure and Assessment after Partition of HUF

Partition of HUF takes place on the date the properties are physically divided. There must be physical division of the properties. Physical division of income without physical division of properties does not amount to Partition. The following procedure is prescribed under section 171 of Income Tax Act for partition and assessment of HUF:

  • HUF shall be considered as undivided unless where a finding of partition has been given under this section in respect of HUF.
  • Where it is claimed by the members that a partition has taken place to AO at the time of making assessment u/s 143 or 144. Then, the AO shall make an inquiry after giving notice of inquiry to all the members of the family.
  • On the completion of the inquiry, the AO shall record a finding mentioning the total or partial partition of the joint family property. And the date on which it has taken place

Responsibility to pay Tax

  • Where a finding of total or partial partition has been recorded by the AO. And the partition took place during the previous year than:
    • The total income of HUF for the period up to the date of partition shall be assessed as if no partition had taken place; and
    • Each member or group of members shall be jointly and severally liable for the tax on the income so assessed in addition to any tax for which he/she may be separately liable
  • The partition took place after the end of the previous year, the total income of the previous year of the joint family shall be calculated as if no partition had taken place. Each member of group of members shall be jointly and severally liable for the tax on the income so assessed.
  • The several liability of any member or group of members shall be according to the portion of the joint family property allotted to him/her at the partition, whether total or partial.
  • The above provisions shall, also apply in relation to the levy and collection of any penalty, interest, fine or other sum in respect of any period up to date of the partition, whether total or partial.

Notwithstanding anything contained in this section, if the AO finds after completion of the assessment of a HUF that the family has already effected a partition, whether total or partial. The AO shall proceed to recover the tax from every person who was a member of the family before the partition. Further, every such person shall be jointly and severally liable for the tax on the income so assessed.

Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
Explore
Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
Explore

Partition of assets of the HUF property

As per the Hindu Law, part distribution of some of the assets of the HUF, i.e. partial partition of the HUF, either in respect of certain assets or in respect of some of the members is fully valid. However, income tax law does not recognize such partial partition of the HUFs’ assets. The income tax laws require that partition of HUF should be full. So in case of partial partition of some assets, the income in respect of such assets, shall be clubbed and included in the income of the HUF. Even if such assets are received by the member/members.

Nature of the property received on partition

The nature of the joint family property on partition shall be of joint family property when the recipient person is married. Hence the character of the property shall remain that of the joint family property. Such property shall be considered as individual property, until the recipient is unmarried or is reduced to a single person. Thus individual property shall continue to be individual property on inheritance. Further, HUF property on partition shall be that of the joint Hindu family subject to the existence of family during the relevant assessment year

ITR for Gains from Sale of House / Property
CA Assisted Income Tax Return filing for individuals and HUFs having Capital Gains / Loss income from sale of house, property, land, etc.
[Rated 4.8 stars by customers like you]
ITR for Gains from Sale of House / Property
CA Assisted Income Tax Return filing for individuals and HUFs having Capital Gains / Loss income from sale of house, property, land, etc.
[Rated 4.8 stars by customers like you]

FAQ

Whether the sum received by a member as and towards his share as coparcener of HUF, on its partition is taxable as income?

The sum received by a member as and towards his share as coparcener of HUF, on its partition cannot be brought to tax as income. As partition is not considered as a transfer.

What will be the treatment of assets after partition, as per Income Tax Act?

Treatment of capital gains on distribution of assets on partition of HUF shall be as under:
– Section 47: No capital gains shall arise to HUF on distribution of assets on partition of HUF.
– Section 49(1): Cost of acquisition of such assets to the member shall be the cost of acquisition of such asset in the hands of HUF.
– Period of holding of assets of transferor shall also be considered for computing the period of holding of assets in the hands of transferee.

Can HUF receive gift from its members?

Earlier HUF could not give or receive gift to or from its members beyond a sum of INR 50,000/-without making the donor liable to tax u/s 56(2). However Finance Act, 2012 extended the definition of a relative to include gift from any member of an HUF to HUF. Thus an HUF can now receive a gift from its member exceeding INR 50,000/- without any liability to pay tax u/s 56(2) of Income Tax Act.

LTC Cash Voucher Scheme

Finance minister, Nirmala Sitharaman, made an announcement on October 12, 2020 of LTC cash voucher scheme for the central government employees. The Income Tax Department, via a press release issued on October 29, 2020, then extended the benefits of the LTC Cash Voucher Scheme to non-central government employees as well, i.e., those employed in the private sector, public sector units, and the state government. The Leave Travel Concession (LTC) cash Voucher scheme was notified by the government in Budget 2021.

Objective of LTC Cash Voucher Scheme

This scheme was announced to boost consumer demand and to provide tax benefit to individuals who are unable to claim the usual LTC tax benefit due to Covid-related travel restrictions. The LTC Cash Voucher scheme aims to provide other expenditure options to the employees to avail the benefits. It would definitely entail tax savings to the individuals who are getting LTA or LTC from their respective employers. The employees have the option to receive a cash equivalent benefit of LTC fare and related leave encashment without traveling under the LTC scheme.

Who are Eligible?

The LTC cash voucher scheme will be available for central government and PSU employees. However, the finance minister extended this scheme to non-central government employees as well, i.e., those employed in the private sector, public sector units, and the state government.

Conditions to claim benefit under the Scheme

To claim the benefit under the LTC cash voucher scheme, an individual is required to fulfil the following conditions:

  • The amount both on account of leave encashment and fare shall be admissible if the employee spends:
    • an amount equal to the value of leave encashment and
    • an amount 3 times of the cash equivalent of deemed fare
    • on the purchase of goods/services attracting GST of 12% or more,
  • Purchases must be made during the period between October 12, 2020 and March 31, 2021.
  • The payment for the goods/services is mandatorily required to be made through a digital mode including cheque, UPI, etc.
  • Invoices must be furnished to an employer containing details of the vendor, GST number and GST amount paid. Invoices in the name of family members can also be submitted.

You will be able to claim the benefits under the scheme only if you fulfill all the above mentioned conditions.

Deemed LTC Fare

The deemed LTC fare for this purpose is as follows:

  • Employees who are entitled to business class of airfare: ₹36,000 (per person Round Trip)
  • Employees who are entitled to economy class of airfare: ₹20,000 (per person Round Trip)
  • Further, the employees who are entitled to Rail of any class: ₹6000 (per person Round Trip)

For example: A maximum tax benefit of LTC fare is INR 36,000 is available per person in case of business class air travel. Thus, for a family of four, the maximum tax benefit that can be claimed is INR 1.44 lakh. Further, to claim the maximum tax benefit, an individual taxpayer will be required to spend INR 4.32 lakh (INR 36,000 X 4 X 3).

Ask an Expert (Income Tax)
Talk to an expert via call, whatsapp or messages. Ask questions about tax returns, applicability & compliance etc.
[Rated 4.8 stars by customers like you]
Ask an Expert (Income Tax)
Talk to an expert via call, whatsapp or messages. Ask questions about tax returns, applicability & compliance etc.
[Rated 4.8 stars by customers like you]

How Does LTC Cash Voucher Scheme Work?

The cash voucher scheme is in lieu of the LTC benefit. So, before you go on to file the claim you should know that this would only apply to you in the following circumstances:

  • The scheme applies to your LTC benefit for the block of 2018 – 2021
  • You have not exhausted the LTC exemption for the current block is 2018-21
  • The cash voucher scheme is available for the money spend on any family member(s) eligible for LTC benefit
  • LTC Cash Voucher scheme is available in the old tax regime. Further, This scheme benefit is not available to an employee who has exercised an option to pay income tax under new income tax / concessional tax regime.
  • Further, the benefits of this special cash voucher scheme will be settled within the current financial year provided the invoices of purchases of goods/services are submitted on time.

Should you opt for it?

This scheme is totally optional and the employees can either choose avail the scheme or opt for the regular LTC in the subsequent years in the block. The benefit is only to the extent of reimbursement in cash of the maximum amount of LTC eligible to them. Those employees who were not planning to avail or have not been able to avail of the the LTC owing to current situation due to Covid-19, have an opportunity to claim LTC cash voucher scheme.

Tax Benefits of LTC Cash Voucher Scheme

Besides getting the reimbursement of purchases, the employees also benefit from LTC scheme in terms of tax savings. Although TDS is applicable on leave encashment, but amount which is related to the cash reimbursement of LTC fare in lieu of deemed actual travel shall be allowed as exemption as per existing provisions. Therefore, TDS provision is not applicable on the amount of LTC fare, which is being reimbursed by employer. However, there are still some uncertain or unclear things in terms of the income tax applicability. IT department also issued clarification regarding various queries received relating to this scheme

FAQ

Can an employee avail of partial benefits of LTC cash voucher scheme?

An employee can avail of the scheme in partial, i.e. of the LTC of part of the eligible family. In such situations, LTC scheme benefits will be applicable to the fare left unutilized during the current block year starting from 2018 to 2021.

An employee incurs the expenditure on or before 31/3/2021 based on the invoice. Actual product or service received in April 2021?

The reimbursement is based on the production of an invoice with details of GST. As far as possible, the claim should be made and settled well before 31st March 2021 to avoid any last-minute rush and resultant lapse.

Do employees need to make a single purchase to get reimbursement under the LTC scheme?

There is no such prescribed format. The employees only need to submit an application to convey the desire to avail the LTC scheme benefits. If they need an advance for the purchase, the same is to be mentioned in the application.

Income Tax on Interest Income

Interest-bearing investments such as savings accounts, fixed deposits, and recurring deposits are go-to options for risk-averse investors. Just like any other income, interest income also attracts income tax. Interest income from these investments is taxable as income from other sources. Lets take a look at some of the most popular interest-bearing investments and how they are taxed in India-

Savings Bank Account – Interest Income

Every quarter bank credits interest to your savings account. Interest that gets accumulated in your savings bank account is considered as your taxable income under the head “Income From Other Source.” And it must be declared in your tax return. Saving account interest is taxable at your slab rate. Do note that bank does not deduct TDS on savings bank interest. While incomes from the fixed deposit and recurring deposit are taxable, interest from the savings bank account and post office deposits are tax-deductible to a certain extent.

How is savings interest taxable?

  • The interest component which is earned on saving account is considered as ‘Income from other Sources’.
  • This interest income will be declared in your Income Tax Return and will be taxable as per the applicable slab rate.
  • As per Section 19A of the Income Tax Act, 1961, TDS is not to be deducted on interest on a savings account.
  • For NRIs, tax is deducted at source (TDS) at 30% on interest on Non-Resident ordinary accounts. No tax applies to interest on Non-resident External (NRE) accounts.
  • Savings interest income of up to INR 10,000 in a financial year is eligible for tax deduction under Section 80TTA of the IT Act.
  • Interest on a savings account up to INR 10,000 is technically treated as a deduction. For example, if your gross total income is INR 10 lakh and you have savings account interest of INR 25,000 a deduction of INR 10,000 will be made from your gross total income.

Deduction Under Section 80TTA

Section 80TTA of the Income Tax Act was introduced in order to allow a deduction of up to INR 10,000 on savings interest. 80TTA deduction was introduced to encourage taxpayers to generate more savings. It is available to individuals and HUFs other than senior citizens.  Section 80TTB is applicable in the case of a senior citizen.

If interest income from all the saving accounts is less then INR 10,000 then the entire amount is deductible. If total interest from saving accounts exceeds INR 10,000 then the maximum of INR 10,000 will be deductible and the remaining amount will be taxable

Ask an Expert (Income Tax)
Talk to an expert via call, whatsapp or messages. Ask questions about tax returns, applicability & compliance etc.
[Rated 4.8 stars by customers like you]
Ask an Expert (Income Tax)
Talk to an expert via call, whatsapp or messages. Ask questions about tax returns, applicability & compliance etc.
[Rated 4.8 stars by customers like you]

FD Interest Income

Fixed deposits have been a popular investment option for many investors, it allows you to exploit complete potential of Section 80C to deduct ₹1.5 lakh from your taxable income. However, interest received on FD is taxable. Income tax on interest on fixed deposit is chargeable under the head ‘Income from Other Sources‘. Hence, the income is added to the total income of the taxpayer.

How is Interest Income from Fixed Deposit Taxable?

Interest received from Fixed Deposits is fully taxable and the tax liability is as per the income tax slab. Add it to your total income under the head ‘Income from Other Sources’ in your Income Tax Return. Tax is Deducted at Source by the bank at the time they credit the interest to your account, and not when the FD matures. You will receive the amount net of tax. You then have to add the gross amount to your income and adjust TDS against your final tax liability.

How income tax on interest on Fixed Deposit is calculated?

Many taxpayers got messages and emails from Income Tax Department regarding a mismatch in the interest income data available with the tax department and what was shown in the Income Tax Return (ITR) filed by taxpayers. Therefore you need to add your interest income to your total income and calculate your tax liability accordingly to avoid any such notices. You can follow the following steps to calculate tax liability on interest on FD to your ITR:

  • Add the interest income under the head Income From Other Sources.
  • See which tax slab rate you fall into.
  • Match it with the yearly TDS deduction in your Form 26AS.
  • Bank does not deduct TDS for annual FD interest below INR 40,000
  • The Income Tax Department will adjust the TDS (which has already been deducted) against your final tax liability.
  • Even when no TDS is deducted include the interest income in your total income and pay tax on it.

Suppose you wait until the maturity of your FD when interest is actually received– your total interest income may push you up to a slab and you may end up paying the higher tax.

Let us understand this by way of an example:

Anish falls in the 20% tax bracket. He has 2 FDs with a bank of INR 1,00,000 each for a period of 3 years at 8% interest per annum. In the first year, Anish’s interest income is INR 8,000 from each of the FDs, total interest accrued is INR 16,000 in the first year. Bank does not deduct TDS for annual FD interest below INR 40,000.

Another example: Arjun has a fixed deposit of INR 8 lakh at an interest rate of 8% p.a. He receives an annual interest of INR 64,000. The bank deducts TDS on the whole of INR 64,000. The prescribed rate of TDS is 10%. However, for the FY 2020-21 (from 14 May till 31 March 2021) the TDS is deductible at 7.5%.

When to pay income tax on interest on Fixed Deposit?

If there is any tax liability after the inclusion of your interest income in your total income tax on that should be paid before 31st March of that FY i.e. before the end of the Financial Year. You may also be liable to pay quarterly advance tax, if your total tax liability is more than INR 10,000

ITR Form to File to Report Income from FD Interest

Taxpayers must file ITR 1 and report the income from FD interest under the income from other sources head. This is in the case where the taxpayer is only receiving income from FD interest.

Check which ITR Form to file?
Income Tax Return Forms to file depends on your Income Source, Residential Status, and other financial situation. Know which ITR Form you should file.
Explore
Check which ITR Form to file?
Income Tax Return Forms to file depends on your Income Source, Residential Status, and other financial situation. Know which ITR Form you should file.
Explore

TDS in relation to FDs

  • When does the bank not deduct TDS
    • If total interest income from all FDs with a bank is less than INR 40,000 in a year, the bank cannot deduct any TDS.
    • The limit is INR 50,000 in case of a senior citizen aged 60 years and above.
    • Prior to Budget 2019, the limit of TDS on interest income was INR 10,000.
  • When does the bank deduct TDS @ 10%
    • When the interest income for the year from all the FDs with the bank exceeds INR 40,000 (INR 50,000 in the case of senior citizens) there would be a 10% TDS deduction from such interest income .
  • The TDS Deduction will be 20% if you don’t provide your PAN to the particular bank. So do make sure that the bank has your PAN details.
  • However, if your income is below the exempted limit, you can file Form 15G/15H to avoid TDS. Form 15H for senior citizens and 15G is for other than senior citizens. Submit these forms at the beginning of each financial year to avoid additional TDS deduction and subsequent refund from the IT Department.

Interest Income of senior citizens

Senior citizens receiving interest income from FDs, savings account and recurring deposits can claim a deduction of up to ₹50,000 annually under Section 80TTB. If the senior citizen’s interest income from all FDs with a bank is less than ₹50,000 in a year, the bank cannot deduct any TDS.

FAQ

How will I receive the interest amount?

If you have deposited your money under the traditional scheme, the interest is credited to the given Savings Account on a monthly or quarterly basis.
If you have opted for the reinvestment scheme, a compounded interest is added to the principal amount every quarter and this is reinvested.
You can choose to receive the interest amount on a monthly, quarterly or annual basis.

What is the exemption limit for FD?

If an individual opts for old/existing tax regime, then under Section 80C of the Income-tax Act, you can claim deduction for investments up to INR 1.5 lakh in a financial year by investing in tax-saving fixed deposits (FDs)

How much money can I lock in a Fixed Deposit?

The lower limit and upper limit vary according to the bank.

Who should file Schedule AL (Assets and Liabilities) in ITR?

Government of India has been introducing various changes to the Income Tax Returns. One such compliance in ITR is the “Schedule AL”. Generally, a taxpayer carrying on business or profession is required to fill in details of assets and liabilities through a Balance Sheet in the ITR. However, in some cases, it is mandatory for taxpayers to disclose their assets and liabilities at the end of the year. Such taxpayer can fill in the details through the Schedule AL.

What is Schedule AL?

This schedule requires the taxpayer to disclose details of various assets owned by them & the corresponding liabilities. But, it is mandatory for specified assessee only. The reason behind it’s inclusion was to have a record of all the assets owned by certain group of people. The disclosure of assets consists of immovable property, movable property and financial assets owned by the taxpayer. The liabilities include all liabilities of the taxpayer in relation to such assets.

When is Schedule AL (Assets and Liabilities) applicable?

Not all the tax payers have to disclose their assets and liabilities. The requirement to furnish particulars of certain assets and liabilities applies individuals and HUFs having an annual income exceeding INR 50 lakh. This requirements are applicable for those filing ITR 2 and ITR 3. This is in addition to the Balance Sheet of the business or profession to be filed in ITR-3.

What if total income of taxpayer is exactly INR 50 lakhs?

Your total income is calculated by subtracting tax saving deductions under Chapter-VI-A from Gross Total Income of a taxpayer. In case, total income of taxpayer is coming exactly INR 50 lakhs, then Schedule AL is not applicable.

For better understanding, lets take an example of Sweksha.

Her gross income per annum is INR 53 lakh. However, she gets a tax deduction of INR 1.5 lakh for investments and expenditures under section 80C and INR 50000 under section 80D. In addition, she has been paying home loan instalments and qualifies for the deduction on home loan interest of INR 1 lakh per annum.
Therefore this brings down her net income to INR 50 lakh. Now, she is not required to file Schedule AL in her ITR.
Further, if there was no home loan interest deduction in that case, the net income would amount to INR 51 lakh. This income would exceed the threshold limit of INR 50 lakh. Consequently, it would be mandatory for Sweksha to fill Schedule AL.

Ask an Expert (Income Tax)
Talk to an expert via call, whatsapp or messages. Ask questions about tax returns, applicability & compliance etc.
[Rated 4.8 stars by customers like you]
Ask an Expert (Income Tax)
Talk to an expert via call, whatsapp or messages. Ask questions about tax returns, applicability & compliance etc.
[Rated 4.8 stars by customers like you]

What details are required to be disclosed in schedule AL?

Taxpayers will have to report the following details in Schedule AL:

  • Immovable Property: Cost of Land and Building owned.
  • Movable Property: Cash in hand, cost of Jewelry, bullion, aircraft, vehicles, yachts, boats.
  • In case of ITR 3 additional details regarding deposits or investments made in banks, investment in shares and securities, loans and advances given, insurance policies, cost of archaeological collections, drawings, paintings, etc. are to be provided.
  • Liability (loans) in relations to the above mentioned assets and investments.

Guidelines to file Schedule AL (Assets and Liabilities)

Here are a few points you must comply to, while filing Schedule AL:

  • You must disclose your assets at cost. Also, you can include any cost of improvement incurred on the asset.
  • The assets mentioned will not include personal accessories i.e. wearing apparel, furniture held for personal use by the taxpayer or dependent any family member.
  • The ‘assets’ to be reported will include land, building along with immovable assets; financial assets such as shares, securities, and deposits; loans and advances, insurance policies, cash in hand, jewellery, vehicles. Further, movable assets such as yachts, aircraft, and boats, and bullion.
  • Jewellery includes :
    • Ornaments made of gold, silver, platinum, any other precious metal, or an alloy made of one or more of such precious metals. It may or may not contain precious or semi-precious stones.
    • Details of precious or semi-precious stones whether or not set in any utensil, furniture, or any other apparel.
  • If the asset is a gift, by will, or any other mode in Section 49(1) and not covered by the above clause:
    • The cost of such asset will be the cost of the previous owner plus the cost of any improvement incurred by the previous owner.
    • If the cost of such asset is not ascertainable and no wealth tax return was filed for that asset, the value can be estimated at the circle rate or bullion rate as per the date of acquisition by the assessee.
  • Non-residents and not ordinarily resident individuals must provide details of their assets situated in India.
  • In the case of liabilities, all liabilities incurred in relation to the assets should be reported such as:
    • Housing loan
    • Vehicle loan
    • Personal loan
ITR for Proprietors with Business Income
CA Assisted Income Tax Return filing for Individuals & HUFs with business income from Proprietary Firm.
[Rated 4.8 stars by customers like you]
ITR for Proprietors with Business Income
CA Assisted Income Tax Return filing for Individuals & HUFs with business income from Proprietary Firm.
[Rated 4.8 stars by customers like you]

FAQ

Is schedule AL applicable for non residents also ?

Yes, schedule Al is applicable irrespective of residential status to individuals and HUFs if the taxable income exceeds INR 50,00,000

I hold foreign assets during the previous year which have been duly reported in the Schedule FA. Whether I am required to report such foreign asset again in the Schedule AL (if applicable)?

Yes, you are required to mention the same in Schedule AL as well.

Market Linked Debentures – Tax Benefits and Risks

Market Linked Debentures are debentures where the pay-off is not defined as in a regular coupon-bearing debenture, but linked to the movement in another security or index such as NSE Nifty index or 10-year government security (G-sec) yield. For example, a 30-month MLD would pay the investor a pre-defined IRR at the end of the tenure if Nifty 50 Index does not fall by more than 75%. Market-Linked Investments may provide full or partial market downside protection and/or enhanced return potential.

Why Market Linked Debentures (MLD)?

A market-linked debenture does not pay any coupon before maturity. On maturity, apart from the initial principal component, there is a pay-off, i.e., a return payable. The advantage is that you are getting the exposure and upside in other markets such as equity (NSE Nifty) or G-sec, without taking as much of a risk as in investing directly into that asset.
If you invest directly in the Nifty or gold and Nifty or gold value declines over the investment horizon, you would lose a part of the principal.

Benefits of MLD

  • Market-linked debentures can be designed in various forms and can be structured to provide different objectives under different conditions.
  • Taxation of this instrument is efficient. These are listed on the exchanges and capital gains from listed debentures, after a holding period of more than one year, are taxable at 10 per cent (plus surcharge and cess).
  • However, non-listed MLDs are not tax efficient.
  • The benefit that investors have in a structure like this is:
    • Principal protection as compared to a pure equity investment where there is risk of capital loss.
    • Superior return potential vs traditional fixed income on fulfillment of an underlying equity condition
    • Structure which is at a candy spot versus two traditional asset classes.
  • While the above example would be that of a simple structure, there are various other complicated structures like:
    • Principal protected with a participation rate linked to an underlying index,
    • Principal protected structures which gives a pay off if equity markets go down,
    • Less than 100% principal protection structures etc.
ITR for Capital Gains from Investment in Stocks
CA Assisted Income Tax Return filing for Individuals and HUFs having income from sale of securities.
[Rated 4.8 stars by customers like you]
ITR for Capital Gains from Investment in Stocks
CA Assisted Income Tax Return filing for Individuals and HUFs having income from sale of securities.
[Rated 4.8 stars by customers like you]

Risks associated with Market Linked Debentures

  • Issuer’s Profile
    • Although a majority of structures are principal protected, the ability of the issuer to repay is of huge importance.
    • Investors may suffer a capital loss in case the issuer fails to repay on the obligation.
    • Thorough due diligence on the issuer’s underlying business, its diversification and key financial ratios should be undertaken before investing.
  • Fulfillment of the underlying market linked condition
    • Secondly, payment of coupon depends upon a certain market linked condition.
    • Investors need to determine a probability on the fulfillment of the underlying market condition.
  • Due to the complexity of structures and higher minimum allocation, these structures are suitable for HNI and UNHI clients who understand the nuances correctly
Ask an Expert (TDS)
Talk to an expert via call, whatsapp or message. Ask questions about TDS Deduction, Rates, Forms, Return Filing & Compliance.
[Rated 4.8 stars by customers like you]
Ask an Expert (TDS)
Talk to an expert via call, whatsapp or message. Ask questions about TDS Deduction, Rates, Forms, Return Filing & Compliance.
[Rated 4.8 stars by customers like you]

FAQ

Are market-linked investments good?

Market-Linked Investments provide access to a wide variety of asset classes, including some not readily available to an individual investor. Further, these investements may provide full or partial market downside protection and/or enhanced return potential.

What is non convertible debentures?

Non-convertible debentures (NCD) are fixed-income instruments. They are usually issued by high-rated companies in the form of a public issue to accumulate long-term capital appreciation. They offer higher interest rates compared to convertible debentures.

How do we account for market linked debentures in books?

A market linked debenture is a loan taken by the company from the market with no provision of any fixed rate of interest. However, the return to the investors is dependent on some market index like Nifty or Sensex.

How to file ITR 3?

Income Tax Return Form 3 (ITR-3) is for individuals and HUFs who have income under the head “profits or gains from business or profession” and who are not eligible to file Form ITR-1 (Sahaj), ITR-2 or ITR-4 (Sugam). Electronic filing of the return has been made compulsory for taxpayers. However, in order to file the ITR, you need to be registered on the e-filing portal. The due date to file this return:

  • Non-audit cases is is 31st July of the next financial year
  • Audit cases is 30th September of the next financial year.

Who should file ITR-3?

The persons having income from following sources are eligible to file ITR 3 :

  • Carrying on a business or profession (both tax audit and non-audit cases)
  • Taxpayers registered under presumptive taxation scheme and having a turnover of more than 2 crore during the financial year
  • Individuals and HUFs who are partners in a firm but do not carry out business under proprietorship. Such income may include income from salary, bonus, commission, interest or remuneration from the partnership firm.
  • The return shall also include income from House property, Salary/Pension, capital gains and Income from other sources
ITR for Proprietors with Business Income
CA Assisted Income Tax Return filing for Individuals & HUFs with business income from Proprietary Firm.
[Rated 4.8 stars by customers like you]
ITR for Proprietors with Business Income
CA Assisted Income Tax Return filing for Individuals & HUFs with business income from Proprietary Firm.
[Rated 4.8 stars by customers like you]

How to file ITR 3?

A taxpayer has to compulsorily file ITR-3 online from the e-filing portal of the income tax department. The ITR-3 can be filed Online/Electronically:

  • Prepare ITR 3 offline using Tax Return Preparation Utility and submit it from your Login on Income Tax Website OR
  • Further, you can also prepare and submit it online using E-Return Intermediary (ERI) like Quicko.
  • You can furnish the return electronically under digital signature or by submitting the verification of the return in Form ITR-V/or E-verifying using other modes.
  • Once e-verified using digital signature you will receive the acknowledgement receipt on their registered email id.

Structure of ITR-3

Part/ Schedule Heading Fields
PART A- GENERAL Personal Information Name, Address, Date of Birth, PAN, contact details.
Filing Status Employer Category, Tax status, Residential status, Return filed under the section.
PART B-TI Computation of total income Total Income from all income sources, Losses of the current year set off, Gross Total Income, Deductions under Chapter VI-A.
PART B-TTI Computation of tax liability on total income The Bank Account details, Verification, and TRP details (if any) are to be provided. 
Schedule IT Details of Advance Tax and Self Assessment Tax Payments BSR code, Date of Deposit, Challan number, Tax Paid
Schedule TDS TDS-1: Details of Tax Deducted at Source from SALARY TAN of Employer, Employer Name, Tax Deducted, etc.
TDS-2: Details of Tax Deducted at sources from Income other than Salary (As per FORM 16A) & Details of tax deducted at source on sale of immovable property u/s 194IA (Form 26QB) TAN, Name of Deductor, Year of Deduction, Tax deducted, etc.
Schedule TCS Details of tax collected at source TAN of the collector, Name of Collector, Tax Collected, etc.
Manufacturing Account Manufacturing Account for the financial year Fill in the opening inventory, purchases, direct wages, direct expenses, factory overheads and closing stock.
Trading Account Trading Account for Financial Year Fill up the details of Trading Account for the financial year
such as Sales/Gross receipts of business/profession, duties, taxes and cess, etc. Further, in respect of supplies, closing stock and opening stock of finished goods, purchases, direct expenses, duties/taxes etc.
P&L Profit and Loss Account for the financial year
In case you were required to maintain regular books of accounts for the proprietary business or profession, please fill up details at item No. 13 to 60. In case you are not required to maintain regular books of accounts, please fill up details at item No. 61-65 falling into respective income sections
Balance-sheet Balance Sheet as on 31st day of March Balance Sheet of the business or profession as on 31st March of the FY in respect of the proprietary business or profession
carried out. I t shall include: Creditors, Debtors, Bank balance, Fixed Assets, etc.
Schedule OI Other Information Part A-OI, contains details of allowances & disallowances under Income tax act. Fill up the information of items which are applicable.
Schedule QD Quantitative details In Part A-QD, the quantitative details of trading and manufacturing account are required to be furnished in respect of principal items.
Schedule S Details of Income from Salary Name and PAN of the Employer, Address of the Employer, Salary, Perquisites, Allowance, etc.
Schedule HP Details of Income from House Property Details of House Property, Name and PAN of the Co-owners and Tenants, Details of Rent Income, Interest payable on Borrowed Capital, etc.
Schedule BP Computation of income from business or profession Income chargeable under the head ‘Profits and gains of business or profession’ is computed starting from the net profit before taxes arrived at in the profit and loss account
Schedule DPM Depreciation on Plant and Machinery(Other than assets on which full capital expenditure is allowable as deduction under any other section)  It provides for computation of depreciation admissible under the
Income-tax Act for the year in respect of plant and machinery
Schedule DOA Depreciation on other assets Computation of depreciation admissible under the
Income-tax Act for the year in respect of other category of assets – land, building, furniture and fittings, intangible assets and ships.
Schedule DEP Summary of depreciation on assets It contains a summary of depreciation admissible under the
Income-tax Act for the year in respect of all category of assets
Schedule CG Income from Capital Gains Details about the Short term and Long term Capital gains, Sales consideration, Cost of Acquisition, Deductions under Section 54, 54B, 54EC, 54F, 54GB.
Schedule OS Income from Other Sources A dividend, Interest, Rental income from machinery, Winnings from lotteries, Crossword puzzles, Races, Games.
Schedule CYLA Details of income after set­off of current year losses Details of current year losses and its Inter Headset off
Schedule BFLA Details of income after Set off of Brought Forward Losses of earlier years Details of brought forward losses set off against current year’s income, total brought forward losses set off.
Schedule CFL Details of Losses to be carried forward to the future years Total of earlier year losses, current year losses, Total of carried forward to future years.
Schedule VI-A Deductions under Chapter VI-A Deductions under section 80C, 80CCC, 80CCG, 80D, 80DDB, 80E, 80G, 80TTA.
80G Details of Donations Name of Donee, Address, City or District, State Code, PAN of Donee, Amount.
Schedule SPI The income of specified persons (spouse, minor child, etc.) included in the income of the assessee (income of the minor child, in excess of INR 1500 per child, to be included) Name and PAN of Person, Relationship, Nature of Income, Amount.
Schedule SI Income chargeable to income tax at special rates Description of Special Rate Income, Special Rate, Income, Taxable Income after adjusting min. chargeable to tax, Tax thereon.
Schedule EI Details of Exempt Income (Income not to be included in Total Income) Interest income, Dividend, Agricultural Income.
Schedule PTI Details of Income from Business Trust or Investment Fund  Details of Income earned from Business Trust or Investment Fund as per section 115UA, 115UB. 
Schedule FSI Details of Income from outside India and tax relief A country, Head of income, Income from outside India, Tax paid outside India, Tax payable in India, Relevant article of DTAA if relief is claimed u/s 90 or 90A
Schedule TR Summary of tax relief claimed for taxes paid outside India Details of tax relief claimed
Schedule 5A Information regarding the appointment of income between spouses governed by Portuguese Civil Code Name and PAN of a spouse, Income received under different heads, Amount appointed in the hands of the spouse, TDS details.
Schedule FA Details of Foreign Assets and Income from any source outside India Details of foreign bank accounts, financial interest in any entities, Immovable Properties, Other Capital Assets.
Schedule AL Details of Assets and Liabilities Details of an immovable asset, Details of a movable asset, Interest held in the asset of a firm or AOP.
ITR for Equity, Intraday and F&O Traders
CA Assisted Income Tax Return filing for Traders having income form Equity, Intraday and F&O Trading.
[Rated 4.8 stars by customers like you]
ITR for Equity, Intraday and F&O Traders
CA Assisted Income Tax Return filing for Traders having income form Equity, Intraday and F&O Trading.
[Rated 4.8 stars by customers like you]

FAQ

Can we file ITR 3 without balance sheet?

If you have business income, you need to fill Business head income(BP), Balance Sheet, Trading Account, Profit and Loss Account, Quantitative Details, Depreciation (If claimed), Deductions Chapter VI-A, Tax paid, TDS, etc. You need to check which schedules are applicable to you and fill the requisite data in it.

Is quoting of Aadhaar Number mandatory?

Yes, it is mandatory to mention the Aadhaar number in the return of income or Aadhaar Enrolment ID if applied for.

How can I download ITR 3 utility?

Follow below steps to download ITR Utility:
1. Visit Income Tax E-filing Portal
2. Go to “Income Tax Return Preparation Utilities”.
3. Select your Assessment Year.
4. Download the utility (Excel/Java)

Where do we give disclosure of unexplained income and Dividend Income?

New fields have been inserted in schedule ‘Other Sources’ to declare unexplained credit or investment and dividend received from domestic companies. Further, such persons cannot opt for ITR 1 Sahaj.

Income tax rules for NRI returning to India

Under Indian tax provisions, NRI is an individual who is an Indian citizen or person of Indian Origin who is not a resident in India. RBI issues guidelines on varied matters relating to an NRI individual. These guidelines relate to opening and maintaining of bank accounts in India as well as for investments in and outside India. Income Tax for NRI will depend upon his Residential Status for the year. It is important to determine the residential status of an individual before determining their taxability.

Who is NRI?

As per Income Tax Act, an individual is considered as a Resident in India, if the individual meets either of the “basic conditions” of presence in India as below:

  • 182 days or more during the current Financial Year; or
  • 60 days or more during the current Financial Year and 365 days or more in total during 4 preceding Financial Year.

If neither of these two conditions is satisfied, the individual would be treated as an NRI. The tax year is calculated from April 1 to March 31. Further, there is another category of non resident Indians, known as ‘Not Ordinarily Resident’ (NOR). You can become an NOR either if your stay in India:

  • In the 7 financial years immediately preceding that financial year is less than 729 days, or
  • If you were a Non-Resident for 9 of the 10 financial years immediately preceding that financial year.
Residential Status Calculator
Residential Status Calculator for Income Tax. Taxability in India depends on residential status. Know your residential status from Resident, NRI, Resident but Not Ordinarily Resident(RNOR)
Explore
Residential Status Calculator
Residential Status Calculator for Income Tax. Taxability in India depends on residential status. Know your residential status from Resident, NRI, Resident but Not Ordinarily Resident(RNOR)
Explore

Tax Implications for NRI Returning to India

The taxability of your income outside India (such as rental income from property outside India, capital gains, bank interest, dividends, etc.) arising out of your assets (such as bank accounts, stocks/securities, residential properties, etc.) shall majorly depend on your residential status in India.

While returning to India you may sell your overseas assets in capacity of a NOR or NRI. In such cases if you sell any overseas assets and receive the sale proceeds outside India, you do not have to pay any taxes in India. Further, you can first receive the sale proceeds in an overseas bank account and thereafter remit part or whole of the proceeds back to India without creating any Indian tax liability.

ITR for NRIs & Foreign Nationals
CA Assisted Income Tax Return filing for Non-Resident Indian Individuals having taxable income in India.
[Rated 4.8 stars by customers like you]
ITR for NRIs & Foreign Nationals
CA Assisted Income Tax Return filing for Non-Resident Indian Individuals having taxable income in India.
[Rated 4.8 stars by customers like you]

Tax Liabilities for NRI Returning to India

Taxability in India is dependent on whether an individual qualifies as a Resident, NOR or Non-Resident. For income which accrues or arises outside India and received outside India during the preceding previous years and remitted to India during the previous year is not taxable to NOR/ NRI.

For income received or deemed to be received or accrues or arises in India during the previous year, is fully taxable for NOR/ NRI. However they can take the benefit of DTAA (Double Tax Avoidance Agreement) between the two countries for the doubly taxed income. This can help avoid paying tax on the same income twice.

The income which accrues or arises outside India and received outside India in the previous year from any other source is not taxable for NOR/ NRI.

Other Considerations while Returning to India

  • As per the guidelines, an individual is required to intimate the change in his residency to the concerned institutions such as banks, financial institutions, mutual fund, etc.
  • For instance, balances held in Non Resident Ordinary (NRO) account will have to be converted to resident status i.e. a normal savings account once the individual becomes a resident in India.
  • FCNR accounts can be continued till the date of maturity and upon maturity, can be converted to RFC accounts.
  • One should keep in mind that under DTC, a person may qualify as Resident Indian on account of removal of NOR concept. In such situation, it would bring assets situated outside India under the ambit of wealth tax.
  • DTC also proposes to levy wealth tax on net wealth in excess of INR 1 crore as compared to 30 lakhs of existing provisions.
  • Resident Foreign Currency is a Scheme approved by RBI that permits persons of Indian nationality or origin to open foreign currency accounts with banks in India for holding funds brought by them to India. It is permitted for those who have returned to India on or after 18th April 1992 for permanent settlement (Returning Indians), after being resident outside India for a continuous period of not less than 1 year.
  • Further, if the Returning NRI had been non-resident for a continuous period of 2 years, he gets exemption from income-tax for subsequent 9 years on the interest earned in RFC account.
  • Returning individuals should therefore focus on understanding the impact on India taxation, and plan their taxation matters accordingly.
ITR for Residents with Foreign Income
CA Assisted Income Tax Return filing plan for resident individuals having foreign income.
[Rated 4.8 stars by customers like you]
ITR for Residents with Foreign Income
CA Assisted Income Tax Return filing plan for resident individuals having foreign income.
[Rated 4.8 stars by customers like you]

FAQ

Can a resident continue to maintain an account outside India, which was opened by him when he was a non-resident?

A person resident in India might maintain a foreign currency account outside India if he had opened it when he was resident outside India or inherited it from a person resident outside India.

What is RFC Account? What are the types of individual RFC accounts that a returning NRI can open?

An RFC (Resident Foreign Currency) Savings Account is a savings account maintained in foreign currencies for NRIs who have returned to India and hold funds in foreign currency. The types of RFC accounts are: Savings Bank, Current account and Term Deposits.

What will be the status of bank accounts of NRIs returning to India permanently?

Non-resident accounts will be re-designated to resident accounts in India on the return of the account holder to India and consequently becoming resident in India.

Can NRI continue with resident savings account?

Most individuals make a mistake of continuing a resident savings account even after becoming an NRI but the law does not allow it. Or in simple words, it is illegal to hold resident savings bank account for NRIs and it will attract hefty penalties.

Relief under section 90, 90A and 91

When you move out of India during a financial year and start earning in another country or still have some financial interest in India, the taxation becomes a little bit more complicated. You would not only be taxed in the new country that you have moved to but might also be taxed in India. To avoid taxing the same income twice relief is available under section 90, 90A and 91. Tax relief can be claimed as follows:

  • There exists DTAA with the Country, then Tax Relief can be claimed u/s 90.
  • If there is DTAA with the Specified Associations, then Tax Relief can be claimed u/s 90A.
  • In case there is No DTAA, then Tax Relief can be claimed u/s 91.

Types of Relief

Relief from Double Taxation can be provided in two ways:

  • Bilateral Relief: When there is an agreement between two countries, relief is calculated as per the mutual agreement between such two countries. Bilateral relief can be granted by either of the following methods:
    • Exemption Method: Under this method, income is taxed in only one country
    • Tax Relief Method: Under this method, income is taxed in both countries. Relief is granted in the country of residence.
  • Unilateral Relief: When there is no mutual agreement between the countries, relief is provided by the home country.
Residential Status Calculator
Residential Status Calculator for Income Tax. Taxability in India depends on residential status. Know your residential status from Resident, NRI, Resident but Not Ordinarily Resident(RNOR)
Explore
Residential Status Calculator
Residential Status Calculator for Income Tax. Taxability in India depends on residential status. Know your residential status from Resident, NRI, Resident but Not Ordinarily Resident(RNOR)
Explore

Relief under Section 90

Section 90 of the Income Tax Act is associated with relief measures for taxpayers involved in paying taxes twice i.e. paying taxes in India as well as in Foreign Countries or territory outside India. This section also contains provisions that will certainly enable the Central Government to enter into an agreement with the Government of any country outside India or a definite territory outside India. Further, it intends to grant relief for the taxes paid in India and in any country outside India. Let us understand with an example:

Mr. Ankit, a resident, earned income in India INR 4,00,000/-. He also earned income from a foreign country INR 1,00,000 (Tax paid in foreign country INR 10,000). How much tax relief can he claim and how much tax he has to pay?

The relief shall be calculated as follows:

  1. Global income is INR 5,00,000/- (4,00,000+ 1,00,000)
  2. Tax on global income INR 12,500/-
  3. Average rate of tax INR 2.5% (12,500/5,00,000100)
  4. Tax required to be paid INR 2,500/- (Rs.1,00,0003*2.5/100)
  5. Tax paid in a foreign country is INR 10,000/-.
  6. The amount of relief shall be lower of (4) and (5) i.e INR 2,500/-

Relief u/s 90A

  • When there is DTAA with the Specified Associations, then Tax Relief can be claimed u/s 90A and shall be calculated in the same manner as Section 90.
  • When a specified association in India enters into an agreement with a specified association abroad, the Central Government, may by notification adopt such agreement and can provide relief u/s 90A of the Income Tax Act, 1961.
  • The relief can be claimed only by the residents of the countries who have entered into the agreement with the Government of India. If resident of other countries want to claim the relief, then they have to obtain a Tax Residence Certificate (TRC) from the government of that country.

Relief under section 91

Section 91 shall apply if the country in which tax is paid has not entered into any agreement with the Government of India. Further, where there is no Bilateral Agreement in such cases unilateral agreement applies. Therefore, without any agreement with any other country a relief is given to the assessee as per the following method.

Steps to compute relief

  1. Calculate the tax payable in India
  2. Compare the Indian tax rate and Foreign tax rate
  3. Multiply the lower tax rate with the doubly taxed income
  4. Relief will be the amount as computed in Step 3.

Let us understand this with the help of an example:

Vartika has a doubly taxed foreign income of INR 1,00,000, when the tax payable in India is to be calculated at the rate of 30% and the foreign tax rate is 20%, then the relief is;

  • Tax payable in India 100000*30% = INR 30,000/-
  • Lower tax rate between 30% and 20% is 20%.
  • Relief shall be > 100000*20% = INR 20,000/-
ITR for Residents with Foreign Income
CA Assisted Income Tax Return filing plan for resident individuals having foreign income.
[Rated 4.8 stars by customers like you]
ITR for Residents with Foreign Income
CA Assisted Income Tax Return filing plan for resident individuals having foreign income.
[Rated 4.8 stars by customers like you]

FAQ

Can a Non-Resident claim relief U/s 90 ?

Yes, a non-resident can claim relief if his/her income is chargeable to tax under the Income Tax Act, 1961. Therefore, if the income of non-resident is not chargeable to tax, than the question of claiming relief does not arise.

Is the residential status of a person relevant for determining the taxability of the income in his hands?

Yes, the residential status of a person earning income is very much relevant for determining the taxability of such income in his hands.
Taxability of any income in the hands of a person depends on the following two things :
(1) Residential status of the person as per the Income-tax Law; and
(2) Nature of income earned by him.
Hence, residential status plays a vital role in determining the taxability of the income.​.​

How to claim Foreign Tax Credit?

If you are a resident of India, income earned by you anywhere in the world shall be taxable in India. In such cases, you would end up paying taxes on the same income twice. DTAA makes sure that a taxpayer is not doubly taxed for the income earned outside the country of residence. Since income may be taxed at source i.e. from the place it originated and is also usually taxable in the country of residence, the DTAA makes sure that the taxpayer is not adversely impacted. It allows the taxpayer to claim Foreign Tax Credit for the taxes paid outside India.

What is Foreign Tax Credit?

If you have paid taxes in one country, you can claim the credit of the tax paid in the country of your residence when both the countries have DTAA. There are two rules to it which are as follows:

  1. Source Rule: This rule holds that income is to be taxed in the country in which it arises irrespective of whether the income arises to a resident or non-resident.
  2. Residence Rule: This rule holds that the power to tax should rest with the country of residence.

If both rules apply simultaneously to an assessee there will be double taxation. Double taxation means taxing the same income twice in the hands of the assessee. Section 90 aims at handling scenarios where India has signed a DTAA with the other country. While Section 91 handles scenarios where India hasn’t signed any such agreements with another country.

Residential Status Calculator
Residential Status Calculator for Income Tax. Taxability in India depends on residential status. Know your residential status from Resident, NRI, Resident but Not Ordinarily Resident(RNOR)
Explore
Residential Status Calculator
Residential Status Calculator for Income Tax. Taxability in India depends on residential status. Know your residential status from Resident, NRI, Resident but Not Ordinarily Resident(RNOR)
Explore

Rule 128 of Income Tax Rules

With the introduction of Rule 128 and Form 67, most of the confusion around claiming tax credit has been resolved. Foreign Tax credit (FTC) in India is governed by Rule 128 of Income Tax Rules and Applicable from 01.04.2017. The rule covers the following conditions:

  • Only a resident assessee will be eligible to claim FTC if any tax has been paid by him in a country or specified territory outside India.
  • Grant of FTC shall be allowed only in the year in which the income corresponding to such tax has been offered to tax or assessed to tax in India.
  • Income on which foreign tax has been paid or deducted is offered to tax. And credit proportionate to Income offered to tax in that year shall be allowed.
  • Foreign Tax Credit will not be allowed in respect of any sum payable by way of interest or penalty.
  • Where a DTAA has been entered between India and the foreign country, eligible foreign tax shall be the taxes covered under the respective DTAA.
  • No credit shall be available in respect of any amount of foreign tax or part thereof which is disputed in any manner by the assessee.
  • Provided that the credit of such disputed tax shall be allowed for the year in which such income is offered to tax or assessed to tax in India if the assessee within six months from the end of the month in which the dispute is finally settled, furnishes evidence of settlement of dispute and evidence to the effect that the liability for payment of such foreign tax has been discharged by him and furnishes an undertaking that no refund in respect of such amount has directly or indirectly been claimed or shall be claimed
  • Further, the credit of foreign tax shall be the aggregate of the amounts of credit computed separately for each source of income arising from a particular country.
  • The credit allowable shall be the lower of the tax payable under the Act on such income and the foreign tax paid on such income.

Documents required to claim Foreign Tax Credit

In order to claim FTC, the assessee shall be required to furnish the following documents. Such documents shall be furnished on or before the due date return of income under section 139(1) of the Act :

  • Certificate or statement specifying the nature of income and the amount of tax deducted therefrom or paid by the assessee:
    1. from the tax authority of foreign country; or
    2. from the person responsible for deduction of such tax; or
    3. signed by the assessee:
  • Provided that the statement furnished by the assessee in clause (3) above shall be valid if it is accompanied by:
    • an acknowledgment of online payment or bank counterfoil, or challan for payment of tax where the payment has been made by the assessee;
    • proof of deduction where the tax has been deducted.
  • Form 67 to be filed on Income Tax Portal
  • Form No. 67 shall also be furnished in the case where the carry backward of loss of the current year, results in a refund of foreign tax for which credit has been claimed in any earlier previous year or years.

File Your Tax Return

On Time , Online on Quicko.com

Open Your Account Today

File Your Tax Return

On Time , Online on Quicko.com

Open Your Account Today

How to claim Tax Credit on Foreign Income?

If you are a Resident, income earned by you anywhere in the world has to be included in your total income.

  1. Convert income earned outside India into Indian currency as per the reference rates

    Convert your income earned in foreign currency into Indian Rupees by using the State Bank of India telegraphic transfer buying rate (TTBR) of the last day of the month before the month in which income is due.
    For example, for converting foreign income of May 2020, use the TTBR of the relevant currency for April 2020 and convert your foreign income into Indian Rupees.

  2. Now, include this income under the respective income head, for example, include salary income under the head ‘salaries’.

    Treat this income as any other income which is earned by you locally. Basic exemption limit of INR 2,50,000 is allowed on your total income and remaining income is taxable as per income tax slab rates.

  3. If TDS has been deducted from your income you are allowed to take credit for such taxes.

    For this purpose, reference has to be made to the relevant Double Tax Avoidance Agreement (DTAA) of the country where such income has been earned. India has entered into DTAAs with several countries. Further, the taxpayer is also allowed to take credit of TDS deducted.

  4. Obtain TRC Certificate

    Taking the benefit of a DTAA involves obtaining a Tax Residency Certificate (TRC) that helps identify and certify your tax residency status to make sure the correct DTAA has been applied. This is in line with the tax laws in India.

  5. While taking TDS credit, make sure the correct DTAA is applied, so you can take credit for the foreign tax deducted.

    Resident in India earning a foreign income should report such income and foreign assets in the Income Tax Return.

  6. The taxpayer should add details of foreign income i.e. income earned outside India in Schedule FSI of ITR

    Enter the following details with respect to Foreign Income:
    a. Country Code – Select the country in which income is earned
    b. Taxpayer Identification Number
    c. Income outside India – enter the amount of income earned outside India
    d. Taxes paid outside India – tax paid on income earned outside India
    e. Tax payable in India – tax payable in India on income earned outside India
    f. Tax Relief available = tax paid outside India or tax payable in India whichever is lower
    g. Relevant DTAA Article – enter details of the relevant article of DTAA under which the taxpayer claims the tax relief

  7. Once the taxpayer adds details of Foreign Income in Schedule FSI, the details in Schedule TR (Tax Relief) get populated.

    The double taxation relief is reduced from the tax calculation.

ITR for Residents with Foreign Income
CA Assisted Income Tax Return filing plan for resident individuals having foreign income.
[Rated 4.8 stars by customers like you]
ITR for Residents with Foreign Income
CA Assisted Income Tax Return filing plan for resident individuals having foreign income.
[Rated 4.8 stars by customers like you]

FAQ

How many methods are there to claim DTAA tax relief?

There are two methods to claim DTAA tax relief – exemption method and tax credit method.
– By exemption method, income is taxed in one country and exempted in another.
– In the tax credit method, where the income is taxed in both countries, tax relief can be claimed in the country of residence.

When and how do I file a foreign tax credit form 67?

You should file Form 67 before filing your tax returns. Further, you can prepare and submit Form 67 online on your Income Tax Portal. Once you login navigate to E-file > Select other Forms > Select Form 67 and assessment year from the drop-down

Can anyone claim Foreign Tax Credit?

Only resident Indians can claim for the tax credits, only if they have paid taxes in another country.