International Taxation : A brief study
Abstract-
International taxation is the study or determination of tax on an individual or business that is subject to the tax laws of different countries, or the international aspects of the tax laws of an individual country, as the case may be. International taxation in simple language means the study of taxation beyond the national level.? Though we all are very much aware about our Indian taxation laws but as time demands something else, there is a need to study taxation at another level. Governments usually limit their income tax net in some way or the other regionally or provide offsets for taxation related to external income.? The method of limitation usually takes the form of a territorial, residence-based or exclusion system.? Some governments have attempted to reduce the individual limitations of each of these three broad systems by implementing a hybrid system with two or more characteristics. Here, my main motive of writing this article is to addressed more about International Taxation. As we all know that India is not new in the scope of International Taxation as already, our country has taxpayers in the form of big MNCs, big business tycoons who are regularly doing international transactions and the main thing is that some of them are located outside India but due to Indian taxability norms, their income is assessed.? It is managed by the Indian Taxation Department. This article discussed the importance, means and methods, policies of International Taxation.
Keywords- Taxation, Indian Taxation Department, Tax Laws, Importance and Policies.
Introduction-
Systems of taxation differ between governments, making generalization difficult.? Specifications are intended as examples, and pertain to particular governments and not to widely recognized multinational regulations.? Various measures of income can be taxed, including local accounting concepts (in many countries this is referred to as ‘profit’), gross receipts, gross margin (sales less cost of sales), or net income under specific.? Categories of receipts Deduction of less specific categories.? Unless otherwise specified, the term “income” should be read broadly.
To simplify administration or for other agendas, some governments have implemented “deemed” income regimes.? This arrangement allows certain classes of taxpayers to be taxed according to the tax system applicable to other taxpayers, but based on the level of income, as received by the taxpayer.? Disputes can arise about whether the levy is appropriate.? Procedures for dispute resolution vary widely and enforcement issues in the international arena are far more complex.? The final dispute resolution for a taxpayer is to leave the jurisdiction, which is where all property can be confiscated.? For governments, the final resolution may be the confiscation of property, the imprisonment or the dissolution of the entity. Other major ideological differences may exist between tax systems.? These include, but are not limited to, assessment versus self-assessment means of assessing and collecting taxes; ways of imposing sanctions for violations; restrictions unique to the international aspects of the system; Mechanism for enforcement and collection of tax; and reporting mechanism.
Basics of International Taxation-
International taxation is the study or determination of tax on an individual or business that may be subject to the tax laws of different countries or to the international aspects of the tax laws of an individual country.
For a detailed study of this topic, we have to understand the tax provisions already existing in India:
Indian Income Tax Provisions relating to non-resident:
?The residential status of a person in a county describes the taxability of that person, but in the case of non-resident only the income which is deemed to be received or received in or on behalf of India.? And income which accrues or arises or is deemed to accrue or arise in India is taxable in India. Section 9 of the Income Tax Act, 1961 also envisages certain deeming provisions.
NRI Tax Exemption?
NRIs are taxed as per the income tax slab applicable to resident Indians who are below 60 years of age irrespective of the age criteria of NRIs.? It simply means that even if the NRI is above 60 years of age, he/she will still be taxed at the rate of per tax applicable to the resident Indian who is below 60 years of age.
But, NRIs are not required to file tax returns in the following two cases:
Tax Deduction at Source (TDS) Provisions relating to NRIs:
TDS Provisions:
The Finance Act, 2008 inserted a new sub-section (6) in section 195 with effect from the 1st day of April, 2008, requiring the person responsible for making payments to a non-resident, to furnish information relating to such payments in the prescribed forms. The Central Board of Direct Taxes (“CBDT”) has prescribed a new Rule 37BB in the Income Tax Rules, 1962 (“Rules”) for filing Form 15CA and Form 15CB in respect of remittances to non-residents under section 195(6) is provision of the Income-tax Act, 1961 (“the Act”).
There is a very common doubt that generally comes to the mind of the any one is double taxation of money.? Generally, people think that if an NRI is paying tax in the country in which he is a non-resident, then the country of his residence will also demand tax from that person for that income.? But if this happens it will lead to double taxation.? The thinking of other people is absolutely right because law explains the same but law is always one step ahead of our mind.? The law has already found a way to avoid double taxation of income in the case of NRIs and what is surprising is the Double Taxation Avoidance Agreement (DTAA).
Double Taxation Avoidance Agreement (DTAA) is an agreement between two countries/nations to address the issues of taxability of income and increased transparency to avoid tax evasion. Each country has its own taxation structure according to which they determine the taxability of the people residing there and also those who do not belong to their country but are related to their country in some way as assessee or deemed assessee.? In.? Therefore, the DTAA of NRIs was constituted to collect tax from income generated in other countries and secondly, to ensure that this taxability of income does not lead to double taxation of equal income in both the countries.
At present, India has DTAA with more than 88 countries.? It states that if an NRI is a resident of any of those 88 countries and is paying tax on the income earned, he will be eligible for tax benefits in either of the following two ways:?
Exemption Method:? Under the method, any one country would tax the income of an NRI.? That is, if the income is taxed in India, then the same income will not be taxed in his own country.?
?Credit method: Under this method, both the countries will levy tax on the income of the person but the country of which he is a resident will allow him to deduct or give credit of foreign tax.
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Computation of Income of Non-Resident Indians (Section 115D):
Section 115D deals with special provision for computing the total income of non-residents, this section states that:?
?(a) the gross total income includes only investment income or income by way of long-term capital gains or both, no deduction shall be allowed assessee under Chapter VIA and nothing contained in the provisions of the second proviso to section 48 shall apply to income chargeable under the head “Capital gains”.
(b) if the gross total income includes any income referred to in clause (a), the gross total income shall be reduced by the amount of such income and the deduction under Chapter VIA shall be allowed as if the gross total income had been so reduced Gross total income of the assesses.
Tax on investment income and long-term capital gains (Section 115E):
Where the total income of an assessee, being a non-resident Indian, includes—?
(a) any income from investment or income from long-term capital gains of any asset other than a specified asset;?
?(b) Income by way of long-term capital gains
Capital gains on transfer of foreign currency assets will not be charged in certain cases (Section 115F):
Where, in the case of an assessee being a non-resident Indian, any long-term capital gain arises from the transfer of any foreign currency asset and the assessee has, within a period of six months after the date of such transfer, made any investment? The whole or any part of the net consideration in the specified asset or in any savings certificate referred to in clause (4B) of section 10, the capital gain shall be disposed of in accordance with the following provisions of this section, namely,—
?Benefits available in certain cases even after the assessee has become a resident (Section 115H):
Where a person, who is a non-resident Indian in any previous year, becomes assessable as resident in India in respect of the total income of any subsequent year, he shall, in writing to the Assessing Officer, along with the return of his income may submit a declaration.? For the assessment year for which he is so assessable under section 139.? In order to take advantage of this benefit, it is necessary to fulfil certain conditions.
International Taxation: A Different Law???
This can be a doubt in mind of anyone who wants to study all aspects of international taxation.? So, let me make it clear: there is no separate law for studying international taxation.? There is no separate court for matters relating to international taxation.? The Income Tax Act, 1961 specifies some different provisions for the taxability of foreign transactions.? Provisions of domestic law apply to handle cross border – direct and indirect taxes.
Research Methodology:
This research entails thorough examination of the international taxation scope in India, as well as the other countries. This study has been addressed the international taxation briefly where knows Indian Income Tax Provisions relating to non-resident, NRI Tax exemption, study about DTAA. This study aims to providing insightful knowledge to its readers about the concept of international taxation.?
Conclusion
Emerging globalization has proved to be a boost to the Indian economy and accordingly poses a challenge against the taxation authorities of India to ensure collectability of dues relating to international transactions.? But looking at the other side of the picture it seems that it is not a difficult task as Indian Chartered Accountants are competent enough to deal with important taxation issues.? Here, the taxation department should take the initiative of entrusting the work to the Chartered Accountants so that the correct picture of the transactions can be ascertained and tax evasion can be prevented.
References:
Author’s Contention:
In my opinion it is very important to study International Taxation. Because the taxation of worldwide income earned by a country’s citizens or residents is an effective way to counter other countries’ efforts to woo business activity or investment capital through lower tax rates. Taxation is also important in Nation building. International Taxation is important for Globalization, to defining Taxing Rights and to avoid Double Taxation conflicts.