Business News Desk – A young man got into trouble when he declared his income in India as around Rs 10,000, but in reality his taxable income was around Rs 43 lakh. Yes, the Income Tax Appellate Tribunal has recently given its verdict in this matter. This young man living in India will have to pay tax on his American income. However, why has this been done and under what rules? Let us know.
Why do I have to pay tax on US income while living in India?
Under tax law, non-residents do not have to pay tax on foreign income in India, but in this case the person is resident both in the country and abroad. Being a tax resident of both India and America, he will have to pay tax on his American income also.
India-US tax agreement
Being a resident of both India and America, now the question arises where does this person pay tax? To know this, ‘tie-breaker test’ is done. This person, who earns about Rs 10 thousand in India and Rs 43.5 lakh in America, will have to apply for the tie-breaker test under the India-US tax treaty, so that it can be decided where he will have to pay tax.
the person was taxable in India
The Income Tax Appellate Tribunal (ITAT) decided through the tie-breaker test, keeping in mind certain criteria, that the person’s center of vital interest is close to India, due to which he will have to pay tax on US income in India. Let us tell you that the person had declared an income of Rs 9,570 for 2012-13, but after adding the American income, his total income became Rs 43.5 lakh.
What is the tie-breaker rule of income tax?
The tie-breaker rule of income tax has been added to the Income Tax Treaty. Through this, it can be found out which country can impose tax on a person who is a resident of two countries. Residents of two countries may be eligible to pay tax. This is usually seen when a person lives in one country and earns income in another country. In such a situation, the individual may be liable to tax in both the countries.