Master Illustration for understanding provisions of Taxation in case where is no Double Taxation Avoidance Agreement (DTAA) with other countries…
Question
Mr. KCA (Resident) aged 62 years earned following income from India, Pakistan and USA during the PY 2024-25. India does not have DTAA with Pakistan and USA.
1.Professional income in India- INR 2,50,00,000.
2. Lottery income in India (Net)- INR 8,000.
3. Agricultural income in Pakistan (Net)- INR 9,00,000. Pakistan allowed a deduction of INR 3,50,000 on agricultural income.
4. Royalty income from Pakistan (gross)- INR 6,00,000.
5. Expenses incurred for earning royalty- INR 60,000.
6. Business loss in USA (not allowed to be set off as per laws of USA)- INR 8,50,000.
7. Rent earned from House property in USA- INR 3,70,000.
Mr. A borrowed Rs.45,00,000 from Bank and the loan was sanctioned on 27.03.2022. The construction was completed on 26.01.2025 and it was let-out from 01.02.2025. Interest payable on loan for the financial years 2022-2023 and 2023-2024 was INR 2,00,000 and INR 1,75,000 respectively. Interest paid during FY 2024-2025 is Rs.1,20,000. Stamp duty value of house property as per US laws in INR is 45,00,000.
He feels he is eligible for sec 80EEA. Advise him on this while computing his tax liability.
8. He invested in 7,000 shares of Apple Inc (per share price in INR is 1,600) on 24.01.2021 and sold 2,000 shares @ INR 1,925 on 12.07.2024 and 3,500 shares on 12.12.2024 @ INR 2,147. This income was earned by him in USA. There is no indexation benefit in USA and Capital gain is taxed at rate of 10%.
He also invested in 440 shares of Reliance Ltd @ INR 800 on 22.11.2021 and sold 340 shares @ INR 1,857 on 06.01.2025. STT was paid on such shares. Company bought back 100 shares and paid INR 2,06,000 on 20.03.2025.
9. Municipal taxed paid (Not allowed as deduction in USA)- INR 13,000.
10. Dividend received from USA on 01.02.2024 USD 210, 30.04.2024 USD 226 and on 02.02.2025 USD 218.
11. He paid for medical insurance of his Non-resident father- INR 48,000.
Tax on agricultural Income in Pakistan is 20% and on other income is 15%.
Tax rate in USA is 12% and USA follows Calendar year.
CII for FY 2020-2021 is 301 and 2024-2025 is 363 Exchange rates- INR per USD:
| Date | 01.02.2024 | 31.01.2024 | 31.03.2024 | 30.04.2024 | 02.01.2025 | 31.01.2025 |
| TTBR | 82.00 | 81.00 | 79.50 | 78.00 | 81.00 | 79.00 |
| TTSR | 84.00 | 82.50 | 82.60 | 80.00 | 83.00 | 82.00 |
Mr. KCA wants to know which regime would be most beneficial for him for AY 2025-2026. Compute his tax liability by comparing both the regimes.
Solution
COMPUTATION OF TOTAL TAXABLE INCOME |
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Particulars |
Amount in Rs. |
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Old Regime |
Default Regime |
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A. Income from House Property (USA) |
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Gross Annual Value |
3,70,000 |
3,70,000 |
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Less: Municipal taxes [As per Sec 23, municipal taxes paid to local authority in respect of the house property is allowed. There is no restriction whether the same is paid in or outside India. If it is paid then it will be allowed] |
(13,000) |
3,57,000 |
(13,000) |
3,57,000 |
||
Less: Deductions under Sec 24 |
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24(a) – Standard 30% |
(1,07,100) |
(1,07,100) |
||||
24(b) – Interest on LoanPre period = [Rs.2,00,000 + Rs.1,75,000]/5Post period = Rs.1,20,000[As per sec 24, pre-period interest is allowed in case of Let-out property in the year of completion of construction in the manner of 5 equal instalments. Post-period is allowed in full in the year in which it is incurred] |
(1,95,000) |
(3,02,100) |
54,900 |
(1,95,000) |
(3,02,100) |
54,900 |
B. Income from Business or Profession |
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Professional Income (India) |
2,50,00,000 |
2,50,00,000 |
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Less: Business Loss (USA)[This is not allowed in USA but while computing taxable income in India it is to be allowed from Professional income] |
(8,50,000) |
2,41,50,000 |
2,41,50,000 |
(8,50,000) |
2,41,50,000 |
2,41,50,000 |
C. Capital Gains |
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1. Shares in Apple Inc (USA) |
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Transfer before 23.07.2024 |
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Full Value of Consideration [2,000 shares * Rs.1,925] |
38,50,000 |
38,50,000 |
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Less: Indexed Cost of Acquisition [(2,000 shares * Rs.1,600) * 363/301] [Indexation benefit is allowed in India. This share is taxable under sec 112 and transfer took place before 23.07.2024, indexation benefit is allowed] |
(38,59,136) |
(9,136) |
(9,136) |
(38,59,136) |
(9,136) |
(9,136) |
Transfer on or after 23.07.2024 |
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Full Value of Consideration [3,500 shares * Rs.2,147] |
75,14,500 |
75,14,500 |
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Less: Cost of Acquisition [3,500 shares * Rs.1,600] [Indexation benefit is not allowed under sec 112 in case of shares if the transfer took place on or after 23.07.2024] |
(56,00,000) |
19,14,500 |
19,14,500 |
(56,00,000) |
19,14,500 |
19,14,500 |
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2. Shares in Reliance Ltd (India) |
|||||||||||
Transfer on or after 23.07.2024 |
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Full Value of Consideration [340 shares * Rs.1,857] |
6,31,380 |
6,31,380 |
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Less: Cost of Acquisition [340 shares * Rs.800] |
2,72,000 |
3,59,380 |
2,72,000 |
3,59,380 |
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Less: Capital loss on buy-back [100 shares * Rs.800] [Cost of acquisition of shares, in case the shares were bought back by the Indian listed Company on or after 01.10.2024, is allowed to be treated as Capital loss and can be set-off. Here, it is long-term in nature, thus, it is eligible to be set-off from Long-term Capital Gains. However, if not adjusted, it can be carried forward for 8 years similar to other Capital losses – Amended as per Finance Act (No. 2) of 2024] |
(80,000) |
2,79,380 |
(80,000) |
2,79,380 |
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21,84,744 |
21,84,744 |
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D. Income from Other Sources |
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Lottery Income (India) [Rs.8,000 / 70%] [Income given is net, so it should be grossed up while computing taxes @ 30% since the tax on Lottery income in India is 30%] |
11,429 |
11,429 |
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Agricultural Income (Pakistan) [Rs.9,00,000 / 80%] [Income given is net, so it should be grossed up while computing taxes @ 20% since rate of tax in Pakistan is 20% on this Income. Total income for the purpose of computing taxes in India will be income before reducing tax payable in other country] |
11,25,000 |
11,25,000 |
|||||||||
Royalty Income (Pakistan) [Rs.6,00,000 – Rs.60,000] [Expenses to earn royalty income is allowed in both the countries] |
5,40,000 |
16,76,429 |
5,40,000 |
16,76,429 |
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Dividend Income (USA) |
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On 30.04.2025 [USD 226 * Rs.79.50] [As per Rule 115, in case of any income received in foreign currency, it should be converted to INR at the TTBR rate prevailing as on last date of the month prior to the month of transfer. In this case it should be TTBR as on 31.03.2024] |
17,967 |
17,967 |
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On 02.02.2025 [USD 218 * Rs.79] [As per Rule 115, in case of any income received in foreign currency, it should be converted to INR at the TTBR rate prevailing as on last date of the month prior to the month of transfer. In this case it should be TTBR as on 31.01.2025] |
17,222 |
17,222 |
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Income on buy-back [As per sec 2(22)(f) inserted by Finance Act (No. 2) of 2024, any income received by assessee on buy-back of shares by Indian listed Company on or after 01.10.2024 is to be taxed as dividend income of the assessee and no expenses are allowed to be set-off from such income] |
2,06,000 |
2,41,189 |
19,17,618 |
2,06,000 |
2,41,189 |
19,17,618 |
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Gross Total Income |
2,83,07,261 |
2,83,07,261 |
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Less: Deductions under Chapter VI-A |
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80QQB: Royalty [Allowed as deduction from total income only under old regime] |
3,00,000 |
– |
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80D: Medical insurance [Allowed as deduction from total income only under old regime. As per sec 80D, any medical insurance paid for senior citizen parent is allowed up to Rs.50,000 only if such senior citizen parent is a resident in India. In the given case parent of the assessee is senior citizen but not resident in India. Thus, only Rs.25,000 will be allowed as deduction for amount paid to keep medical insurance in force in case of his senior citizen parent] |
25,000 |
(3,25,000) |
– |
– |
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TAXABLE INCOME |
2,79,82,261 |
2,83,07,261 |
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| COMPUTATION OF TAXES | ||||||
| Taxes on special income | ||||||
| Lottery income [Rs.11,429 * 30%] | 3,429 | 3,429 | ||||
| Capital Gain under 112A [(Rs.2,79,380 – 1,25,000) * 12.5%] [As per amendment by Finance Act (No. 2) of 2024, rate of tax under sec 112A for transfers on or after 23.07.2024 is at 12.5% and amount of exemption from sec 112A income is Rs.1,25,000 instead of Rs.1,00,000] | 19,298 | 19,298 | ||||
| Capital Gain under 112 [Rs.19,05,364 * 12.5%] [As per amendment by Finance Act (No. 2) of 2024, rate of tax under sec 112 for transfers on or after 23.07.2024 is at 12.5%] | 2,38,170 | 2,38,170 | ||||
| Remaining income Old regime [Rs.2,79,82,261 – Rs.11,429 – Rs.21,84,744] = Rs.2,57,86,089
Default regime [Rs.2,83,07,261 – Rs.11,429 – Rs.21,84,744] = Rs.2,61,11,089 |
75,45,827 | 78,06,723 | 75,23,327 | 77,84,223 | ||
| Add: Surcharge | ||||||
| Surcharge on tax on Capital Gain [(Rs.19,298 + Rs.2,38,170) * 15%] | 38,620 | 38,620 | ||||
| Surcharge on tax on Dividends Old regime [Rs.78,06,723 / Rs.2,79,82,261 * Rs.2,41,189] * 15%Default regime [Rs.77,84,223 / Rs.2,83,07,261 * Rs.2,41,189] * 15% | 10,093 | 9,949 | ||||
| Surcharge on tax on Other income
Old regime [Rs.75,45,827 / Rs.2,79,82,261 * (Rs.54,900 + Rs.2,41,50,000 + Rs.16,76,429)] * 25% Default regime [Rs.75,23,327 / Rs.2,83,07,261 * (Rs.54,900 + Rs.2,41,50,000 + Rs.16,76,429)] * 25% |
17,44,820 | 17,93,533 | 17,19,644 | 17,68,213 | ||
| Tax after surcharge and before cess | 96,00,257 | 95,52,437 | ||||
| Add: Cess @ 4% | 3,84,010 | 3,82,097 | ||||
| Tax liability before relief under sec 91 | 99,84,267 | 99,34,534 | ||||
| Relief under sec 91 (Refer W.N. 1 and 2 below) | (3,15,710) | (3,69,551) | ||||
| Net Tax Liability | 96,68,557 | 95,64,983 | ||||
| W.N. 1 – CALCULATION OF RELIEF UNDER SEC 91(1) | |||||||
| USA | |||||||
| Doubly taxed Income | Calculation of relief | ||||||
| House property
[Only Rs.54,900 is taxed in India and USA. Total of (Rs.3,70,000 – Rs.54,900) is allowed in India and is not taxed in India] PGBP [Since the business loss is allowed only in India, it has been reduced from doubly taxed] Capital Gains [Only this much is taxed in India and USA both. However, taxes in USA is paid on Rs.25,64,500. Refer W.N. 3] Income from Other sources Dividend – Rs.17,967 + Rs.17,222 |
54,900
(8,50,000) 19,05,364 35,189 |
Relief is lower of average rate of tax in USA or in India, applied on the Doubly taxed Income.
Average rate of Tax in USA = 10.27% Average rate of tax in India =
[Calculation is required under both regimes. Since tax rate in India under any regime is higher of tax rate in USA, it is 10.27% relief in both regimes] |
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| Total | 11,45,453 | Relief is 10.27% of Rs.11,45,453 | 1,17,638 | ||||
| W.N. 2 – CALCULATION OF RELIEF UNDER SEC 91(2) | |||
| Pakistan | |||
| Doubly taxed Income | Calculation of relief | ||
| Agricultural Income
[Pakistan allows Rs.3,50,000 deduction from Agricultural Income but the same is not allowed in India. Thus, in India tax in not paid on Rs.3,50,000] |
7,75,000 | Relief is lower of tax paid in that country or average rate of tax in India applied on such income:
Tax paid on Agricultural Income in Pakistan [(Rs.11,25,000 – Rs.3,50,000) * 20% Average rate of tax in India applied on such income [Such income means agricultural income for the purpose of this calculation as per Indian laws] Old regime = Rs.11,25,000 * 35.68% Default regime = Rs.11,25,000 * 35.10% [Relief in both regimes are the tax paid in Pakistan] |
1,55,000
4,01,400 3,94,875 |
| Relief | 1,55,000 | ||
| Other Income
[Royalty income is Rs.5,40,000 but deduction of Rs.3,00,000 is allowed under sec 80QQB under old regime and the same is not available in default regime] Thus, doubly taxed income is changed in both regimes Old regime [Rs.5,40,000 – Rs.3,00,000] Default regime |
2,40,000
5,40,000 |
Relief is lower of average rate of tax in Pakistan or in India, applied on the Doubly taxed Income.
Average rate of tax in Pakistan = 17.95% Average rate of tax in India: Old regime = 35.68% Default regime = 35.10% |
|
| Relief in Old is 17.95% of Rs.2,40,000 | 43,072 | ||
| Relief in Default is 17.95% of Rs.5,40,000 | 96,913 | ||
| W.N. 3 – CALCULATION OF AVERAGE RATE OF TAXES | ||||||||||||||
| India | USA | Pakistan | ||||||||||||
|
House property – Rs.3,70,000
[Since, local taxes were not allowed, total of Rs.3,70,000 is taxed in USA] Capital Gains – Rs.25,64,500 [On sale before 23.07.2024, only cost in US is allowed to be adjusted against consideration. Gain = (Rs.1,925 – Rs.1,600) * 2,000 shares On sale on or after 23.07.2024, only cost is allowed to be adjusted against consideration. Gain = (Rs.2,147 – Rs.1,600) * 3,500 shares] Dividend – Rs.35,189 [Since, dividend is taxed in USA] Total Income in USA – Rs.29,69,689 Taxes on Capital Gains – Rs.2,56,450 [Rs.25,64,500 * 10%] Taxes on Other Income – Rs.48,623 Total taxes in USA – Rs.3,05,073 Average rate of tax = 10.27% [Income / Taxes] |
Royalty Income – Rs.5,40,000
[Since, Rs.5,40,000 is taxable in Pakistan] Taxes – Rs.5,40,000 * 15% = Rs.81,000 Agricultural Income – Rs.7,75,000 [Since, Rs.3,50,000 is allowed as deduction in Pakistan] Taxes – Rs.7,75,000 * 20% = Rs.1,55,000 Total Income in Pakistan – Rs.13,15,000 Total Taxes in Pakistan – Rs.2,36,000 Average rate of tax = 17.95% [Income / Taxes] |
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Author Bio
should we calculate doubly taxed income as per Indian income Tax law provisions? like in WN-1 we calculated relief by taking lower rate (USA) while taking income as per Indian provisions not as per USA.
Yes, doubly taxed income is computed basically as per laws of both countries. We compute that portion of income which is taxed in both countries.