Tax Column

I am an individual resident in India.I have earned foreign income during the previous year 2024-25 on which tax was deducted. Whether I am entitled to foreign tax credit in India and whether any refund can also be issued to me?

Any Indian resident, if they earn income abroad, that income is also subject to tax in India. Foreign countries deduct tax on income earned. Therefore, Indian residents can claim relief from double taxation. Foreign tax credit (FTC) mechanism is available under Section 90 / 90A / 91 of the Income Tax Act. As such, in your case, you can claim foreign tax credit in India for tax paid on income earned but subject to certain conditions. You need to file Form 67 before filing the Return of Income for the assessment year 2025-26. The form needs to be filled in properly. Further, proof of payment of foreign tax along with a certificate from the foreign party needs to be attached. The most important condition is that foreign income must be included in the total income offered to tax in India. You will get credit for foreign tax paid against the taxes payable in India on the same income. However, if the taxes payable in India are less than the foreign tax credit, no refund of excess foreign tax is granted. In other words, foreign tax credit cannot be refunded or carried forward. You will get the tax credit in the year when foreign income is offered to tax. 

I am an individual and a resident in India. I have taken a residential flat on rent from a Non-resident landlord. I have also taken a small office premises on a monthly rent of ₹60,000 per month from a resident landlord. Can you explain the procedure and the amount of withholding tax while making the payment of rent? 

You have two landlords, one Non-resident landlord in respect of residential premises and another resident landlord in respect of commercial property. Both the rents are subject to withholding tax but at different rates and under different Sections of the Income Tax Act. As per Section 195 of the Income Tax Act, rent payment to a Nonresident landlord by any person requires TDS deduction at 30 per cent and applicable surcharge. Even an individual taking a residential property for his personal use is required to deduct TDS from payment of rent to a Non-resident landlord. There is no minimum threshold limit prescribed for rent payment to a Non-resident and any amount of rent will involve deduction of tax. Further, you are also required to obtain TAN and file quarterly Returns in addition to depositing TDS on a monthly basis. Thus, if you have a Non-resident landlord, then a lot of requirements under the Act need to be followed. For your information, if the landlord would have been a resident, then the threshold limit is ₹50,000 per month and the rate of TDS is also 2 per cent with effect from October 1, 2024. Further, TDS is required to be deducted at the end of the financial year or at the time of vacating the premises, whichever is earlier. The payer is not required to obtain TAN and TDS can be deposited by using PAN of the payer. As regards rent payable by you in respect of commercial premises owned by a resident landlord, TDS rate is 5 per cent from April 1, 2024, till September 30, 2024, and 2 per cent with effect from October 1, 2024. The threshold limit is ₹50,000 per month and not required to obtain TAN. 

Can you explain to me in brief what is the new TCS on sale of notified luxury goods? 

To keep better tracking on high-value transactions, the Government has amended Section 206C(1F) of the Income Tax Act with effect from January 1, 2025, extending the application of TCS to notified luxury goods. Under this provision, the seller of 10 notified luxury goods with effect from April 22, 2025, is liable to collect 1 per cent TCS on the value exceeding ₹10 lakh of notified items. The notified luxury goods are (a) any wristwatches (b) any art pieces (c) any collectibles such as coins and stamps (d) any yachts, boats, and helicopters (e) any pair of sunglasses (f) any bags, including handbags and purses (g) any pair of shoes (h) any sportswear and equipment, such as golf kits (i) any home theatre systems (j) any horses used for horse racing or polo. TCS is prescribed at 1 per cent on sale consideration inclusive of GST and other charges. Further, if your Aadhaar is not linked with PAN, then TCS will be collected at a higher percentage i.e. 5 per cent. TCS will be collected by the seller at the time of receipt of consideration. However, the TCS will be levied on the sale of a single item of notified luxury goods if the value exceeds ₹10 lakh. For example, if you buy a wristwatch for ₹8 lakh and if you buy a handbag for ₹5 lakh, from the same seller, then no TCS will be collected as the sale price of a single item is less than ₹10 lakh. For your information, TCS on the sale of motor vehicles is already in existence since June 1, 2016. Now with this amendment, 10 more luxury goods/items are also brought under the purview of TCS provisions. 

I am a partner in an LLP drawing remuneration and interest. I was told that withholding tax has also been introduced on partner’s remuneration. Can you explain? 

The Finance Act 2024 has introduced a new provision under Section 194T mandating Tax Deduction at Source (TDS) at 10 per cent on payments made or credited by partnership firms including LLPs to its partners, in the nature of salary, remuneration, commission, bonus or interest. This provision has come into effect from April 1, 2025, thereby during the financial year 2025-26 relevant to the assessment year 2026-27. The firm/LLP needs to deduct withholding tax at 10 per cent on payment made to partners on account of remuneration, interest, commission, bonus, etc. A threshold limit has also been prescribed exempting TDS where the aggregate payment during a financial year to the partner of the firm does not exceed ₹20,000.