Finance ministry plugs under-reporting of income by overseas taxpayers

MUMBAI: The finance ministry was fast to note that some taxpayers weren’t together with taxes withheld outdoors India for the aim of calculating their whole income. This, in flip, led to beneath reporting of income. These people supplied the overseas income web of tax and on the identical time claimed a overseas tax credit score (FTC) for taxes withheld overseas in opposition to their India tax legal responsibility.In brief – they received a double benefit.
The Budget proposes to amend part 198 of the I-T Act to incorporate income taxes paid outdoors India for the aim of computing the income of the taxpayer who’s liable to tax in India. This proposal will likely be efficient monetary 12 months 2024-25.
Parizad Sirwalla, companion and head (world mobility companies tax) at KPMG India, mentioned, “The amendment is more clarificatory in nature. This was always the correct position. As explained in the explanatory memorandum. It appears that some taxpayers (including companies) were not doing so and hence this amendment was introduced making it abundantly clear.”

She offers an illustration. An Indian worker of an Indian subsidiary of a German firm was granted shares beneath the worldwide Esop plan. He was eligible to obtain dividend of 100 euros on such shares. According to German regulation, 10 euros was withheld and the stability was transferred to the worker’s Indian checking account.
“The correct tax position was always to offer the entire 100 euros as income and claim 10 euros as a double tax relief (credit against Indian tax liability on such 100 euros),” KPMG India’s Sirwalla added.
Ameya Kunte, founder, Globeview Advisors, factors out just a few choices the place overseas tax was not held half of the full income assessable to tax in India – these now stand overturned.
“The MP high court in the case of Yawar Rashid had held that the tax deducted at source outside India from foreign dividends and interest income was not part of the total income and thus not assessable in the hands of the taxpayer. This HC decision was also relied upon by the Bangalore bench of the Income Tax Appellate Tribunal in the case of Sunil Shinde. The proposed amendment makes it clear tax deducted at source outside India, will be part of income. The taxpayer can claim a foreign tax credit against the Indian taxes due on the overseas income.”