Taxability depends on your residential status

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Taxpayers who are residents of one country but earn taxable income at source in another country must refer to the Double Tax Avoidance Agreement (DTAA) between the two countries. In accordance with the DTAA between the UK and India regarding capital gains, the DTAA specifies that each Contracting State may tax capital gains in accordance with the provisions of its domestic law. Therefore, your advisor’s understanding is correct. However, you can claim a credit for tax paid in India, which can reduce your tax burden in the UK. In addition, your taxability will depend on your residential status treatment and the tax base you are opting for.

A person on a student visa of 4-5 years duration in any university in the US gets one year and then two additional years to work locally under the OTP category related to their degree course. Generally, the salary is around $75,000-110,000 per year. In the US, taxes are deducted or collected by local employers and tax returns are submitted locally. Is such income (on F1 visa) taxable in India if the students have PAN card? Also, how does one file an income tax return for such a person, or is it not necessary to file an income tax return?

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Knowing the residential status is important to understand the tax implications. Most of the students going abroad for studies will come under ‘resident’ for some initial years.

If a student is classified as a ‘resident’, his/her global income will be taxed in India. However, India has a Double Tax Avoidance Agreement (DTAA) with the US. Hence, they will be able to claim tax credit of TDS deducted in the US from their tax liability arising in India.

Filing of return will be mandatory if the income of the resident is more than ₹2.5 lakhs. ITR for such taxpayer can be filed online.

Archit Gupta is the founder and CEO of Cleartax.