Personal Finance

Your Taxes

Sanjiv Chaudhary | Updated on May 17, 2020 Published on May 17, 2020

I am a regular reader of The Hindu BusinessLine for the past five years. I have been working on salary income in France since September 2017. I arrived in France on Sep 27, 2017. Before that I stayed in India for 25 years. I will be returning to India on October 8, 2020, to take up employment in India. For FY20-21, will I be considered a resident and ordinarily resident in India, considering I will be in India for more than 60 days in this FY and for more than 365 days in preceding four FYs (Section 6 of the Income Tax act).

In France, a financial year is from January 1 to December 31. I am a tax resident in France, paid by a French employer, and receiving salary in a France bank account. In this case, do I need to pay tax on France income in India or will it be exempted as per Article 16 of the DTAA between India and France. In France, this income is already taxed. What about applicability of Sec 90(2) of the I-T Act? Is there any recent judgement by the Supreme Court after introduction of Sec 90(2), wherein the income is taxed only in the source country and exempted from the country of residence?

In this context, do you think my France salary income from April 2020 to September 2020 should be offered to tax in India for FY20-21? Or can Article 16 of the DTAA provide relief — as it is already tax-paid salary, it should not be included for tax purposes in India?

If the France salary is included and I need to pay tax on it in India, can I claim HRA benefit for rent paid in France for April to September 2020 as this is an expense for me?

Sunil

Based on the information provided by you, we understand that for FY 2020-21 you would be relocating to India to take up employment effective October 8, 2020.

Accordingly, you are expected to qualify as a resident and ordinarily resident (ROR) in India as per the provisions of Section 6 of the I-T Act, and will be taxed in India on your global income for the subject period, including the salary received by you in relation to your assignment in France.

We also understand from your comments that for the period January 1, 2020 to October 7, 2020, you will be qualifying as a resident of France as per that country’s domestic tax laws.

From the above, it is likely that you shall qualify as a resident of both countries for the period April 1, 2020, to October 7, 2020, and the relevant provisions of the double taxation avoidance agreement (DTAA) between India and France will be required to be analysed. In case of dual residency, the ultimate/treaty residency is required to be analysed as per Article 4 of the DTAA, which lays down various subjective tests (in chronological order) for determining the ultimate residency of an individual, which include permanent home, centre of vital interests and habitual abode.

Assuming that you are an Indian citizen and have spent most of your life in India, and have stronger social and economical ties with India, you may qualify as an ultimate/treaty resident of India. Accordingly, you may not be eligible to claim exclusion of your France income in India under Article 16(1) of the DTAA and such income will be required to be taxed in India.

However, you will be eligible to claim credit of eligible taxes paid in France (to the extent of tax liability on your doubly taxed foreign income in India) as per the provisions of Section 90(2) read with Article 25 of the DTAA.

Also note that as per rule 128 of the Income Tax Rules, every person who wishes to claim foreign tax credit in their return of income is required to file Form 67 online, before filing of their India tax return.

In case a position emerges that you are an ultimate tax resident of France, then exclusion under Article 16(1) may be claimed. For claiming such benefit of exclusion, a tax residency certificate as per the provisions of Section 90(4) of the I-T Act is required to be obtained from competent authorities in France.

Regarding your query in relation to HRA, in case your salary from the French employer includes allowance provided to meet house rental expenses, you may claim benefit of exemption under Section 10(13A) of the I-T Act, in respect of the rent payments made by you.

The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in

Published on May 17, 2020

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