How to Report Foreign Income in Your ITR?

Table of Contents

1. Introduction
2. Who Needs to Report Foreign Income?
3. Types of Foreign Income & Their Tax Treatment
   • Salary Earned Abroad
   • Freelancing & Business Income from Foreign Clients
   • Rental Income from Foreign Properties
   • Capital Gains from Foreign Investments
   • Interest & Dividend Income from Foreign Accounts
4. How to Report Foreign Income in Your ITR
5. Foreign Tax Credit (FTC) & Double Taxation Relief
6. Common Mistakes to Avoid
7. FAQ Section

1. Introduction

With globalization, many Indian taxpayers earn foreign income from jobs, freelancing, investments, or rental properties abroad. However, not reporting it correctly in your Income Tax Return (ITR) can lead to penalties and scrutiny from the Income Tax Department.

If you have received any income from outside India, this guide will help you understand how to report it in your ITR and claim benefits like Foreign Tax Credit (FTC) to avoid double taxation.

2. Who Needs to Report Foreign Income?

Your residential status under the Income Tax Act determines whether you need to report foreign income:

• Resident (ROR) – You must report and pay tax on all global income earned, including foreign income.
• Resident but Not Ordinarily Resident (RNOR) – You only need to report income earned in India and income derived from India.
• Non-Resident (NR) – You only need to report income earned in India. Foreign income is not taxable.

3. Types of Foreign Income & Their Tax Treatment

Foreign income is categorized based on its source and taxability in India:

A. Salary Earned Abroad

• If you are an Indian resident working abroad, your salary is taxable in India.
• TDS deducted abroad can be adjusted using Foreign Tax Credit (FTC).
• Report this in ITR-2 under ‘Salary Income’.

B. Freelancing & Business Income from Foreign Clients

• Self-employed professionals or freelancers earning in foreign currency must convert earnings into INR and report under ‘Income from Business or Profession’.
• Declare payments received via PayPal, Wise, or bank transfers.
• FTC can be claimed if foreign tax was deducted.

C. Rental Income from Foreign Properties

• Indian residents earning rent from property abroad must report it under ‘Income from House Property’ in ITR.
• If foreign tax was paid, FTC can be claimed.

D. Capital Gains from Foreign Investments

• Sale of foreign stocks, ETFs, mutual funds, or real estate must be reported under ‘Capital Gains’.
• Capital gains classification: Long-term (after 24 months) or Short-term (before 24 months).
• Convert sale value, purchase cost, and tax deducted into INR as per RBI exchange rates.

E. Interest & Dividend Income from Foreign Accounts

• Interest earned from foreign savings accounts or deposits is fully taxable in India.
• Dividends from foreign stocks must be declared under ‘Other Income’.
• FTC can be claimed if taxes were deducted abroad.

4. How to Report Foreign Income in Your ITR

1. Choose the Right ITR Form:
   • ITR-1 – Cannot be used if you have foreign income.
   • ITR-2 – Use for salary, capital gains, or rental income from abroad.
   • ITR-3 – Required for business or freelancing income from foreign clients.
2. Declare Foreign Assets & Bank Accounts (Schedule FA):
   • Any overseas bank accounts, stocks, property, or investments must be disclosed.
   • Non-disclosure may attract hefty penalties under the Black Money Act.
3. Claim Foreign Tax Credit (FTC) in Form 67:
   • If tax was paid in another country, FTC can be claimed under Double Taxation Avoidance Agreement (DTAA).
   • Form 67 must be filed before filing your ITR.

5. Foreign Tax Credit (FTC) & Double Taxation Relief

Many countries have DTAA agreements with India to avoid double taxation. You can:

• Claim credit for taxes paid abroad to reduce Indian tax liability.
• Use Form 67 to claim FTC while filing ITR.
• Keep proof of foreign tax paid – tax certificates, Form 16, or employer statements.

6. Common Mistakes to Avoid

 Not reporting foreign income – Even if tax was paid abroad, it must be declared in ITR.  Failing to disclose foreign assets – Schedule FA is mandatory for residents.  Not filing Form 67 for FTC – FTC cannot be claimed without this form.  Incorrect currency conversion – Use RBI’s exchange rate on the last day of the financial year.

7. FAQ Section

1. Is foreign income taxable in India?

Yes, if you are a Resident (ROR), all global income is taxable in India.

2. How do I claim Foreign Tax Credit?

File Form 67 and attach proof of foreign tax paid before filing ITR.

3. What happens if I don’t report foreign income?

Non-disclosure may lead to penalties under the Black Money Act and scrutiny from the IT Department.

4. Do I need to disclose my foreign bank account even if I have no income from it?

Yes, Schedule FA must be filled by all residents holding foreign accounts or assets.

5. Which ITR form should I use for foreign income?

Use ITR-2 for salary or capital gains and ITR-3 for business/freelancing income.

6. Can I claim FTC without paying tax in India?

No, FTC can only be claimed against actual tax liability in India.

By following these guidelines, you can accurately report foreign income in your ITR and avoid penalties. Always consult a tax professional if unsure!