Investors diversify their portfolios by investing in global markets. However, when investors liquidate these investments, they encounter tax obligations in both their country of residence and the country where the investment was made. Schedule FSI and Schedule TR need to be filled only if an individual has paid taxes on foreign income and is claiming tax relief against that in India. This article covers all that you need to know about Schedule FSI and TR for NRI, how to file FSI, and how to get relief.
What are Schedule FSI and TR?
Schedule FSI (Foreign Source Income) - It is a schedule in the Indian Income Tax Act that mandates resident Indians to pay tax on their global income. Therefore, if an Indian resident earns income from a country outside India, he/she is required to pay tax on the same and report it under schedule FSI while filing their ITR. However, there is no need to report any losses under this schedule.
Schedule TR (Tax Relief) - A resident Indian earning income in a foreign country is required to pay tax in both countries, which results in double taxation as the same income is taxed twice in both countries. In order to avoid double taxation, India has entered into a Double Taxation Avoidance Agreement (DTAA), wherein taxpayers can claim relief from dual taxation through the following ways -
Tax Credit - Under this method, the income is subject to tax in both countries but exempt from tax in the resident country.
Exemption Method - Under this method, the foreign income of an individual is taxed in only one country and is exempted in another country.
Who needs to File Schedule FSI and TR?
Any individual earning income from a foreign source is mandatorily required to report its details in Schedule FSI, irrespective of whether they are claiming any credit for the taxes paid outside India, and also disclose the details of the tax relief claimed in India.
Schedule FSI Instructions for NRI
Resident Indians having income from a foreign source are required to fill out schedule FSA in ITR-2. NRIs or non-resident Indians are not required to report their foreign income in ITR-2. Income earned by NRIs in India is taxable if it exceeds Rs.2.5 lakhs per annum.
How do you File Schedule FSI and get Relief?
You have to enter the details of the income earned in a foreign country in your ITR-2. Below are the instructions you must follow to fill out the schedule FSI in ITR-2 -
You are required to mention the tax amount paid outside India on the income generated from a foreign country in Column C.
You need to mention the tax relief amount in Column D, under schedule FSI.
Enter the country's ISD code under the country code column.
Enter your TIN (Taxpayer Identification Number) number in the country where you have paid tax. In case you do not have a TIN, you can also use your passport number.
Schedule TR instructions for NRI
Individuals who are paying any tax amount outside India can claim tax relief in India after reporting the amount in the ITR-2 form. Non-resident Indians having income from a source that is taxable in India have to file their ITR. Taxpayers are also required to report their foreign assets and liabilities in ITR-2 under FSI, TA, and TR schedules. In other words, NRIs have a taxable income source outside India and can submit the schedule TR.
How do you file Schedule TR and get relief?
First, visit the official portal or website of the Income Tax Department. Navigate through the return filing section and select ITR-2. Now, navigate to the return filing section and select ITR-2. Follow the below instructions on how to fill out the schedule TR -
Mention the details of the tax amount paid in the foreign country. This tax has to be calculated and paid on the income mentioned in Schedule FSI.
Enter your TIN number and your ISD code as your country code.
Fill in the TR (Tax Relief) claimed under sections 90, 90A, and 91 in the required columns of the Income Tax Act.
Once you have filled out the ITR-2 form, you can go ahead and submit it. Also, make sure you verify it to get the acknowledgment form.
What is the Time Period for Reporting Foreign Income in ITR?
Taxpayers are required to report their foreign incomes for the financial year under consideration, i.e., from 1st April to 31st March.
For example, if a taxpayer is supposed to file his/her ITR for the Financial Year 2022-23. They have to report the foreign income earned between the period of 1st April 2022 and 31st March 2023.
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