How Treaty Tie Breaker Rule Affect Taxation of NRI Income ?


treaty tie breakerThe residential status of a taxpayer is the core criteria for application of Income Tax Act on any income earned by him in India or outside. The issue of settling the tax residency status become quite complex when a tax payer is present physically in more than one country in a year , and by virtue of law of another country , he/she appears to be tax resident of two countries. In such situation, the a question arises which country will have the right to tax an income ? Let us take an example. An Indian who is US citizen spends more than 182 days while working in a company in India. He has earned income from salary, interest , dividend and capital gains in India and also partly  in USA. In his case , a quite complex situation arise because :

  • By virtue of section 6 of Income Tax Act , he is resident of India and his global income(including income earned in USA)  is taxable in India
  • Since he is citizen of USA, his global income is taxable in USA.
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