Is foreign income taxable for freelancers?

tax tds tax on freelance income tax on foreign income DTAA
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If you’ve been securing freelance projects through an online platform, it’s quite likely that some of your clients are from another country. While the cross-cultural experience can be interesting, will freelance income tax be too much of a hassle?

The initial steps may certainly seem cumbersome, but here are a few steps to simplify freelance taxes:

Freelance tax filing

Figure out your residential status

If you’re an Indian citizen and have never worked out of India, this is pretty straightforward—you’d be a resident Indian. The case can get a little more complex however if you were working abroad, have just relocated to India and are freelancing or consulting for a foreign company.

As per law, an Indian resident would be someone who has lived in India for a period of 182 days or more in the financial year OR who has been in India for 60 days or more in a financial year and 365 days or more in the 4 years preceding that particular financial year.

Convert foreign income into Indian currency

If you’re a resident Indian, the income you’ve earned from another country will need to be included to your total income. State Bank of India’s Telegraphic Transfer Buying Rate (TTBR) can be used to convert your foreign income to Indian currency. You’d need to calculate the rate based on the rate of the last day of the month preceding the month in which you received income. This means that if you want to convert income received in May 2019, you’d have to use the TTBR for April 2019.

Uniform laws for foreign and domestic income

Your foreign income will need to be treated in the same way as your local income. So, if you’ve been entering local earnings under the salary head, your foreign income too would need to be entered under this head. You can still avail the minimum exemption of Rs 2,50,000 on your total income.

Be aware of DTAA

Similar to TDS in India, the country laws of the client you work for may necessitate that he/she cuts tax. This could mean that your income is taxed at source and also in the country of residence. To prevent this, India has entered into Double Tax Avoidance Agreements (DTAAs) with several countries. The rate differs for each country, so do check the relevant DTAA of the country where your income was earned.

The mandatory documentation for this would be a tax residency certificate. You can claim tax relief either through exemption or tax credit.

Under the exemption method, income would be taxed in one country and exempted in the other. In practical terms, if your client is based in the US, you would need to submit Form W8BEN, which declares that you are a tax paying resident of India, and ask the client not to withhold taxes in the US. Under the tax credit method, since you have been taxed in both countries, you would get a foreign tax credit for taxes paid in the source country.

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