💡 Frequently Asked Questions

The Central Board of Direct Taxes (CBDT) plays a crucial role in addressing double taxation issues in India. It is responsible for negotiating and interpreting tax treaties with other countries, issuing circulars and notifications to clarify tax provisions, and resolving disputes related to double taxation. The CBDT also provides guidance on the application of tax treaties and double taxation relief provisions through its circulars and instructions.

There are two main methods used to provide relief from double taxation: the exemption method and the credit method. The exemption method exempts certain types of foreign-sourced income from taxation in the resident country. The credit method allows taxpayers to claim a credit for taxes paid in the source country against their tax liability in the resident country, effectively avoiding double taxation.

Tax treaties, also known as Double Taxation Avoidance Agreements (DTAAs), are bilateral agreements between countries to prevent or mitigate double taxation. These treaties establish rules for allocating taxing rights, providing tax credits or exemptions, and resolving disputes related to double taxation. They typically cover various types of income, such as business profits, employment income, capital gains, and dividends.

Double taxation can have significant financial implications for individuals and businesses. It increases the overall tax burden, reduces net income, and can discourage cross-border investments and economic activities. For individuals, double taxation can occur on employment income, investment income, or income from multiple sources. For businesses, it can arise due to taxes levied on profits, dividends, or other income in different jurisdictions.

Double taxation refers to the situation where the same income is taxed twice by different taxing authorities or jurisdictions. This occurs when an individual or entity pays taxes on the same income in more than one country or state. Double taxation can arise due to conflicting tax laws, lack of coordination between tax regimes, or different interpretations of tax treaties.

Individuals classified as Non-Residents (NRs) are liable to pay tax in India only on their Indian-sourced income. Their global income earned or received outside India is not taxable in India. NRs are subject to specific tax rates, which may differ from those applicable to Residents. However, they are eligible for certain tax deductions and exemptions specific to their status.

Individuals classified as Resident but Not Ordinarily Resident (RNOR) are liable to pay tax in India on their Indian income and income received or deemed to be received in India from foreign sources. However, their foreign-sourced income which is not received or deemed to be received in India is exempt from tax in India. RNORs are subject to special tax rates and enjoy certain tax benefits compared to RORs.

Individuals classified as Resident and Ordinarily Resident (ROR) are liable to pay tax in India on their global income, i.e., income earned in India as well as income accrued or received outside India. They are subject to the regular tax rates applicable to individuals, and their income from all sources, both Indian and foreign, is taxable in India. ROR status carries the highest tax liability under the Income Tax Act.

The residential status of an individual is determined based on their physical presence in India during the relevant financial year (April 1 to March 31) and certain other conditions laid down under Section 6 of the Income Tax Act, 1961. The key criteria include the number of days spent in India, whether the individual qualifies as a ‘Resident’ or a ‘Non-Resident’, and if a Resident, whether they are an Ordinary Resident or Not Ordinarily Resident based on their stay and other factors.

Residential status is a crucial concept under the Income Tax Act, 1961 as it determines the scope of an individual’s tax liability in India. It classifies taxpayers into three categories: Resident and Ordinarily Resident (ROR), Resident but Not Ordinarily Resident (RNOR), and Non-Resident (NR). The residential status is determined based on the individual’s physical presence in India during the relevant financial year and certain other conditions prescribed under the Act. The scope of taxable income and applicable tax rates differ for each category.

With fixed interest rates, the interest charged or earned remains constant throughout the loan or investment period. This simplifies calculations as the rate does not change. For variable interest rates, however, the rate fluctuates over time based on market conditions or other factors like the prime lending rate. This makes interest calculations more complex as you need to account for the changing rate at different compounding periods. Typically, amortization schedules are used that recalculate interest amounts as rates change. Variable rates add uncertainty but can be beneficial if rates decrease during the term.

The rule of 72 is a simple way to estimate how long it will take for an investment to double in value at a given annual interest rate. The rule states that the time (in years) required to double an investment is approximately 72 divided by the annual interest rate. For example, if the interest rate is 6%, the time to double is around 72/6 = 12 years. This rule provides a quick, rough estimate useful for basic interest calculations. It is derived from the properties of exponential growth and continuous compounding.

Continuous compounding is an extreme case where the compounding period approaches infinitely small time intervals. This results in the highest possible interest accrual compared to annual, semi-annual or other periodic compounding frequencies. The formula for continuous compounding is: FV = PV * e^(rt), where e is the mathematical constant (approx 2.71828), r is the annual interest rate, and t is the time period in years. Due to the exponential nature, continuous compounding produces higher returns than periodic compounding over longer time periods.

The annual interest rate, also known as the nominal rate, is the stated interest rate over a period of one year. The effective annual rate (EAR) or annual equivalent rate (AER) takes into account the effect of compounding within the year. For example, if a loan has a 12% annual interest rate compounded monthly, the EAR will be higher at around 12.68%. The EAR more accurately reflects the true cost or return over the year. To calculate EAR, use the formula: EAR = (1 + r/n)^n – 1, where r is the stated annual rate and n is the number of compounding periods per year.

Interest is typically calculated using one of two methods: simple interest or compound interest. Simple interest is calculated on the principal amount only for the period of investment. Compound interest is calculated on the principal plus the accumulated interest from previous periods. The formula for simple interest is: Interest = (Principal x Rate x Time). For compound interest, the formula is: FV = PV x (1 + r/n)^(n*t), where FV is future value, PV is present value, r is annual interest rate, n is number of times interest is compounded per year, and t is time in years.

If the income tax department issues a rectification order correcting an error or mistake in the original assessment order, you may be eligible for a refund of excess tax paid due to the rectification. In such cases, you need to file a refund claim with the jurisdictional tax officer, providing a copy of the rectification order and supporting documents. The refund claim will be processed, and the excess amount, if any, will be refunded after verification. It’s advisable to claim the refund within the prescribed time limits to avoid delays or rejection.

Yes, you can claim a refund of excess advance tax paid if the advance tax payments made during the financial year exceed your actual tax liability computed after considering income and eligible deductions. To claim the refund, you need to file your income tax return accurately and report the advance tax payments made. The excess amount, if any, will be refunded after processing the return. It’s advisable to maintain proper records of advance tax payments to facilitate the refund process.

To claim a refund of excess tax paid on capital gains, you need to accurately report the capital gains and claim applicable exemptions or deductions in your income tax return. If the tax paid on capital gains exceeds the actual tax liability, the excess amount will be refunded after processing the return. It’s crucial to maintain proper documentation, such as purchase and sale records, to support the capital gains computation. The refund process is generally automated, but you can check the status on the income tax e-filing website.

The time limit for claiming a refund of excess tax deducted or collected at source is generally one year from the end of the assessment year in which the tax was deducted or paid. However, in specific cases like disputed tax demands, the time limit is extended to two years from the end of the assessment year in which the order was passed. It’s advisable to claim the refund within the prescribed time limits to avoid delays or rejection of the claim.

To claim a refund of excess tax paid, you need to file your income tax return accurately. If the tax deducted/collected exceeds the actual tax liability computed after considering income and eligible deductions, the excess amount will be refunded. The refund process is automated, and the refund amount is generally credited directly to your bank account after processing your return. If the refund is not received within the prescribed time, you can check the status on the income tax e-filing website or reach out to the jurisdictional tax officer.