Tax Tips if you Work Abroad

May 24, 2011     Posted under: Investment

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If you have a job overseas or if you planning for emigration, then there are few things one must take care in order to avoid any tax blooper

Global Income in Your Tax Return

Governments often demand tax on global incomes of foreign residents living in their country on a long term basis. Countries such as the US, the UK and Australia now require immigrants who become permanent residents or citizens to report their incomes from global sources and pay tax accordingly. Temporary residents have to ensure that taxes are paid in the home country. India also requires its residents to pay tax on income earned overseas, if they ordinarily pay tax in India.

What Constitutes Global Income

Global income includes everything earned abroad, from rental income and dividends to interest and capital gains. If you are emigrating from India, make a list of your assets, the cost of acquisition, earnings from these assets and the tax paid on incomes and capital gains.

Permanent residents in the US also have to report inheritances and gifts received in India, though there is no tax liability on such gains either in India or the US. Conversely, if you are only a temporary resident in these nations, you will have to continue paying taxes in India on the income earned here.

Manage Tax Residency

The residency rules determine if an NRI has to pay tax in a foreign country or India. There is no common rule across the globe. Countries such as the UK and Australia use a residency test to determine if a person is required to pay tax. So, if you have spent more than 182 days in a country, such as India or the UK, during a financial year, or more than 729 days in the previous seven financial years, you will have to pay tax in that country. This means that if you emigrate mid-year, you will pay tax in India as well as file returns at the end of the year.

In case, you are a temporary resident of, say, the UK, you will pay tax only on the income you earn in the UK till you become a permanent resident. To avoid confusion about the number of days spent in a country, it will be useful to maintain details of entry and exit as stamped on the passport.

Credit for taxes paid in India

India has signed double tax avoidance treaty with about 70 countries, including the US, the UK, Australia, Japan, Germany and Switzerland. This ensures that NRIs can claim foreign tax credit if taxes have been paid on incomes and gains in India. If however, taxes paid in India are lower than the required to be paid in the country where the NRI is residing; additional tax will have to be paid. Before you claim foreign tax credit, ensure that you have all the relevant documents as proof.

Residency rules and Direct Taxes Code

The current residency rules in India will change when the Direct Taxes code is implemented, most probably from 1st April 2012. The change will mean that a person will have to pay tax in India if he spends 60 days in the country during a financial year, or 365 days or more in the previous four financial years.

NitiN Kumar Jain

Nitin works in an IT MNC professionally but blogs and owns NKJ Live. He is also the co-owner of a professional start-up ARGHAM BYTES

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  • Dvirnave

    This is a tricky one : I moved to US in Sep 2010 and I am filing my Tax return in INDIA for Mar31 st 2011. I am showing the Income that I recived in US to the Indian Tax computation Form. My question is : Am I allowed an HRA exemption for the Rent that I pay in US approx 1300 USD per month ? Assuming my Salary is US $ 5000 per month and I have paid all Taxes in US , My India Tax Liability is still very high in INDIA if I dont get a HRA benefit. I am definately not claiming any HRA in INDIA since I dont have a house in INDIA now. 

    • NitiN Kumar Jain

      Income you are earning in US has the tax liability in US only .. no need to show it in India nor there is any provision to get exemptions based upon your living in US … Let them be separated …

  • Diane Siriani

    Very Informative. I just launched my own expatriate tax return service for expatriates at Check it out!

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