Personal Finance

Your Taxes

Sanjiv Chaudhary | Updated on September 27, 2020 Published on September 27, 2020

My son and his wife live in Sydney, Australia. They hold permanent residency status. My son is filing I-T return here, showing the income generated on interest on deposit accounts, long-term and short-term gains on equity investments, etc. He also files tax returns in Australia every year on his salary income, etc.

I would like to know whether inclusion of income earned by him in India is to be shown in the tax return filed by him in Australia and payment of tax is to be made on the total income earned here and in Australia. What arrangement on taxation does our country have with Australia? Please throw light on the subject.

RM Ramanathan

I understand that your son lives in Australia and qualifies as a Non-Resident (NR) in India as per the provisions of Section 6 of the Income Tax Act, 1961.

Being an NR in India, his income is taxable in India only in respect of income which accrues or arises or is deemed to accrue or arise in India; or is received or deemed to be received in India during such year.

I understand that your son is earning interest income from deposit accounts and capital gain/loss on equity investments. Since this income is earned in India, he is taxable on such income and is required to pay appropriate taxes on such income in India.

I also understand that he is a tax resident of Australia and earns salary income in Australia.

Please note that inclusion of India-sourced income in Australia for taxation purpose would primarily depend on the domestic tax laws of Australia.

Therefore, one needs to check Australian domestic tax laws to ascertain whether your son’s India-sourced incomes will become taxable in Australia or not.

I, not being an expert on Australian tax laws, will not be able to comment.

However, it is pertinent to note that India has a Double Taxation Avoidance Agreement (DTAA) with Australia to mitigate the impact of double taxation of income in either of the countries.

In case of any Indian income being taxed in Australia, recourse to the DTAA could be taken to mitigate the impact of double taxation in Australia (either by claiming credit of taxes paid in India on Indian income taxed in Australia or by exclusion of such Indian incomes in Australian tax returns).

From the Indian perspective, since your son qualifies as an NR in India, he shall not be taxable on Australian income and hence there will be no double taxation in India.

You may also note that in relation to Indian interest incomes, Article 11 of DTAA provides for taxation of interest incomes.As per the provisions of clause 1, interest earned in India by a resident of Australia may be taxed in Australia.

Such interest may also be taxed in India.

However, tax on such interest shall not exceed 15 per cent of gross interest income.

In this case, your son may tax interest income in India at 15 per cent if that seems more beneficial to him.

However, please note that in order to claim the benefit of the above clause, he would be required to obtain a Tax Residency Certificate (TRC) from Australian tax authorities.

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

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Published on September 27, 2020
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