How to avoid double taxation on overseas income in India

Some double tax avoidance agreements stipulate limits on the amount of FTC

By HP Ranina/NRI Biz Matters

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Published: Tue 11 Jun 2024, 12:30 PM

Question: I am planning to return to India but I will continue to earn foreign income in countries where there is a withholding tax. I am told that I will be eligible for foreign tax credit. Can you please throw some light on this subject?

ANSWER: Foreign Tax Credit is a mechanism employed by several countries to prevent double taxation arising from income earned in one country but taxed both in the country in which it arises as well as the country in which the person receiving the income is a resident. It would be best for you to avail of the services of a tax adviser in India because several complications are involved while claiming the tax credit. Differences in tax years for taxable income being shown in the return and the date of tax payments between the two countries will impact on the calculation of FTC.

This is in view of the fact that India follows the financial year, namely April 1 to March 31, for tax purposes whereas some foreign countries follow the calendar year for tax purposes. Therefore, to claim the FTC, calculations will have to be made by your tax adviser to ensure that the same income is not taxed twice. Further, some double tax avoidance agreements stipulate limits on the amount of FTC that can be claimed and therefore the tax credit may have to be computed separately for each source of income. Proper documentation is essential to support the FTC claim which would include furnishing of foreign income-tax returns and proof of foreign taxes paid. Maintaining accurate records would facilitate giving the right response in case of queries raised by the tax authorities in one or both countries.

Question: With India manufacturing substantial quantities of solar panels and electric vehicles, will it be able to get adequate quantities of raw materials required for producing batteries or will it be dependent entirely on imports at rising prices?

ANSWER: In order to be self reliant and reduce its dependence on imports of critical raw materials, India has applied to the United Nations’ International Seabed Authority for a licence to explore two regions of the Indian Ocean rich in minerals such as cobalt and manganese which are critical for producing batteries for electric vehicles and solar panels. India currently holds licences to explore two regions in the Indian Ocean which permit exploration of polymetallic nodules in the central Indian Ocean at a depth of 6 kilometers. India also has the licence to explore for polymetallic sulphides.

The polymetallic nodules which are found in the seabed contain manganese, nickel, cobalt, copper and iron hydroxide. Indian researchers have initiated test mining which involves developing and testing equipment to extract and harvest minerals without disturbing the environment. One of the national institutes has developed an integrated mining system. Researchers belonging to the National Institute of Ocean Technology have so far identified more than 350 million tonnes of polymetallic nodules which include more than one million tonnes of cobalt. This mineral is at present being imported from the U.K., China and Norway. Therefore, the exploration for minerals in the Indian Ocean is critical for India to be self reliant.

H. P. Ranina is a practising lawyer, specialising in tax and exchange management laws of India.
H. P. Ranina is a practising lawyer, specialising in tax and exchange management laws of India.

Question: My younger brother who is going for higher studies desires to acquire expertise in blockchain technology. I wonder what future lies in specializing in this subject and whether he can look forward to a rewarding career.

ANSWER: Blockchain technology certainly has potential because it not only transcends its role as a mere data base but it represents a revolutionary technology which will make critical impact on several industries across the globe. The core tenets of immutability, decentralization and security make it a platform for innovation. By utilizing cryptography and distributed ledger technology, blockchain ensures transparent, secure and real time transaction tracking which will lay the foundation for a trustworthy digital ecosystem. Transitioning to Web 3.0 will mark a paradigm shift in internet dynamics, propelled by blockchain technology. Web 3.0 will herald a new era of decentralization and peer-to-peer interactions. Financial institutions and regulatory bodies are increasingly adopting blockchain technology. Beyond crypto assets, blockchain technology will make an impact on various sectors including supply chain and healthcare. Therefore, there is immense potential for your brother to specialize in blockchain technology, offering him opportunities for innovation and growth.

HP Ranina is a practising lawyer, specializing in corporate and tax laws of India.

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