Many Indians earn income abroad or invest in overseas assets. But with international income comes questions about withholding tax, double taxation, and ITR reporting requirements. The Income Tax Department has made it mandatory to disclose foreign assets and income in Schedules FA and FSI of your ITR. This article breaks it down in simple terms.
What is Withholding Tax?
- Withholding tax is the tax deducted at source (TDS) on income earned in another country before you receive it.
Example: If you earn dividends from a US stock, the US may deduct 25% withholding tax before sending you the payout. - This ensures governments collect tax upfront from non-residents.
What is DTAA (Double Taxation Avoidance Agreement)?
- DTAA is a treaty between two countries to prevent the same income from being taxed twice.
- India has signed DTAAs with over 90 countries including the US, UK, Singapore, UAE.
- Benefit for taxpayers: You can claim a credit in India for tax already paid abroad.
Example: If you paid 25% tax in the US, and your Indian tax rate is 30%, you only pay the 5% difference in India.
ITR Schedule FA (Foreign Assets)
If you hold any foreign assets, you must disclose them in Schedule FA while filing your ITR.
Assets covered include:
- Bank accounts abroad
- Foreign stocks, ETFs, mutual funds
- Real estate abroad
- Financial interests in companies, partnerships, or trusts
- Any other foreign investment
Non-disclosure penalty: ₹10 lakh under the Black Money Act.
ITR Schedule FSI (Foreign Source Income)
This schedule captures details of income earned from abroad, such as:
- Salary received in foreign bank accounts
- Rent from foreign property
- Dividends from overseas stocks
- Business income from foreign sources
Tax credits claimed under DTAA are also reported here.
Example: US Stock Dividends
- You earn $1,000 dividend from US shares.
- US deducts $250 (25% withholding tax). You receive $750.
- In India, you must declare $1,000 as income.
- If your tax rate is 30% (₹24,900), you can claim credit of ₹20,750 already paid in the US.
- Net payable in India = ₹4,150.
- Withholding Tax: Tax deducted abroad before payout.
- DTAA: Prevents double taxation, lets you claim credit.
- Schedule FA: Report all foreign assets.
- Schedule FSI: Report foreign income and claim DTAA credit.
Ignoring these disclosures can attract penalties. Accurate reporting protects you from legal issues and ensures you benefit from tax treaties.
By understanding withholding tax, DTAA rules, and correctly filing Schedules FA and FSI, you can avoid double taxation, stay compliant with Indian law, and make the most of your global income.
