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Investment World - Income Tax S

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Double taxation of salary T
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• SE Diary T. Banusekar S
I am currently working in the US. I receive my salary in terms of dollars and rupees
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• Scoreboard which is taxed in the US and India respectively.
As I am taxed for the salary that I receive in India, one part of my salary is taxed both in G
India and US as well. Are there any benefits available under double taxation avoidance I
Cross Currency agreement between India and the US? — Perumal S
In your query you have not indicated what your residential status is under the Income
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Tax Act. You have also not indicated whether you would be a resident of India or the US s
Shipping in accordance with the Double Taxation Avoidance Agreement between India and the
US. Under Section 6 of the Income Tax Act, an individual is resident in India if he Q
• Ports satisfies any one of the following conditions:
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He is in India for 182 days or more in the previous year. He is in India for 60 days (182
Archives days if he leaves India to take up employment outside India if he is a citizen of India or R
being outside India comes to India on visit if he is a citizen of India or a person of Indian
• Yesterday
origin) or more in the previous year and for 365 days or more in the four years preceding S
the previous year. T
• Datewise
He is resident but not ordinarily resident if he satisfies any of the following conditions:
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(i) He is non resident in 9 out of the 10 years preceding the previous year. (ii) He is in
India for 729 days or less in the 7 years preceding the previous year. (iii) If an individual B
• Resources
is resident but is not resident but not ordinarily resident then he would be resident and
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ordinarily resident. An individual who is not a resident would be a non-resident. The
• In Focus scope of taxation in India on the basis of the Income Tax Act in accordance with Section S
5 of the Act will be on the following basis (see table).
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• In Depth
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For the purpose of taxation on the basis of receipt, it is the place of first receipt after the B
ISO-8859-1 accrual of income, which is to be taken.
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It can thus been seen that if you are a resident and ordinarily resident in India in
GALT:#008000;G accordance with the Income Tax Act, your salary earned in the US will also be taxable in R
India. You have, however, stated that only your Indian salary is taxed in India. This may l
en be taken as indicating that you are either a resident but not ordinarily resident in India or s
a non-resident in accordance with the Income Tax Act. The Double Taxation Avoidance
blonnet.com Agreement between India and the US in Article 4 defines when an individual would be T c
resident in India. The tests for determining the same would be as follows: o
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He shall be deemed to be a resident of the State in which he has a permanent home m
available to him; if he has a permanent home available to him in both States, he shall be M
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deemed to be a resident of the State in which his personal and economic relations are
closer (centre of vital interests). D
• The Hindu s
(i) If the State in which he has his centre of vital interests cannot be determined, or if he
does not have a permanent home available to him in either State, he shall be deemed to I
• The Hindu be a resident of the State in which he has an habitual abode.
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(ii) If he has an habitual abode in both States or in neither of them, he shall be deemed to C
• Business Line be a resident of the State of which he is a national.
(iii) If he is a national of both States or of neither of them, the competent authorities of
• Business Line the Contracting States shall settle the question by mutual agreement.
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Each of these tests are alternative tests and a subsequent test would apply only if the
earlier test fails. Thus under the Double Taxation Avoidance Agreement you cannot be a
• Sportstar resident of both India and USA and would end up with being a resident only of one of
these countries.
• Frontline Article 25 of the Double Taxation Avoidance Agreement between India and USA
provides for tax credit being allowed by the country of residence in accordance with the
• The Hindu Double Taxation Avoidance Agreement in respect of the tax paid in the country of
eBooks source. The tax credit that can be taken will be the tax paid on the doubly taxed income
but cannot exceed the tax payable on such income in the country of residence.
• The Hindu You may note that if the country of residence is India, credit will be allowed only in
Images respect of the federal taxes of the US imposed by the internal revenue code (but
excluding the accumulated earnings tax, the personal holding company tax and social
security taxes). If you are a resident of the US, credit can be claimed only against the
taxes payable in the US which are stated above. You may also note that a person who is
not a resident of either of the countries under the Double Taxation Avoidance Agreement
cannot get the benefit of a Double Taxation Avoidance Agreement.
I received 500 shares of my company under Employees Stock Option Plan (ESOP),
which is listed in both the BSE and NSE. I acquired these shares at Rs 98 per share in
May 2007.
I also paid a fringe benefit tax of Rs 120 at the time of acquiring these shares. I now
propose to sell these shares and I would like to know what will be the capital gain (tax
rate) on the sale of these shares. — A.S. Chandrasekar
The Finance Act 2007 has amended the provisions of Section 115WB to provide that
Employees Stock Options will also be a fringe benefit and fringe benefit tax will be
payable on the same.
Section 115WKA has also been introduced in the Act to provide that such tax may be
recovered by the employer from the employee.
The value of fringe benefit is to be taken as the difference between the fair market value
of the share on the date on which the option vests with the employee as reduced by the
amount actually paid or recovered from the employee in respect of such shares.
The fair market value is to be determined in accordance with the method prescribed by
the board in this regard. Section 49 of the Act has also been amended to provide that the
cost of acquisition of such shares will be the fair market value which is taken for the
purpose of determining the fringe benefit. Since fringe benefit tax has been paid by you
in respect of the options, the fair market value taken for the purpose of determining the
fringe benefit will be your cost of acquisition and this could be reduced from the full
value of consideration in computing the capital gains.
You could also reduce expenses such as brokerage which are incurred wholly and
exclusively for the purpose of the transfer in computing your capital gains. Since the
shares have been held by you for less than 12 months the gain would be short-term and if
 the shares are sold through a recognised stock exchange the tax would be chargeable at
10 per cent (as increased by the appropriate surcharge and additional surcharge).
If the shares are not sold through a recognised stock exchange, the rate of tax would be
based on the slab which is applicable to you.
(Mail your queries to taxtalk@thehindu.co.in or by post to `Tax Talk', Business Line,
Kasturi Buildings, 859, Anna Salai, Chennai-600002)
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