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Rebate under double taxtion treaty

Monday, December 06, 2010
By Anand Tibrewala

Rebate under Double Taxation Treaty

Q-1) I am working with a large Indian Company. The Company has offered me House Rent Allowance option or company hired accommodation. The cost is pre determined i.e. cost of hiring the apartment or House Rent Allowance is same. Please advice which is a better option for me?
-Anju Parab, Khar

Ans: In the situation prescribed by you it would be advisable for you to go for House Rent Allowance option for the following reasons:
a) House Rent paid by you would be allowed as deduction if you are paying the rent.
b) House Rent Allowance could be retained by you i.e. you may hire a house which is not very expensive and save some amount for yourself.
Therefore, I personally recommend the House Rent Allowance option for you.

Q-2) I have joined a multi national company. I was paid a signing / joining bonus of Rs. 5,00,000/-. The appointment letter stated that if I leave the company within 12 months from my date of joining, I will need to return the signing bonus to the company. Now after 8 months working I have received an opportunity to start my own business and hence left the company. I have paid back the sum of Rs. 5,00,000/- to the Company. Please advice whether the said refund would be set off or adjusted against the bonus payment to me?
-Sagar Salvi, Charni Road

Ans: The refund of Rs. 5,00,000 by you to your company would not be allowed to be set off or adjusted against the bonus received by you. The reason for the same is that the Income Tax Act, 1961 has prescribed limited deductions which can be set off against salary income. The refund of bonus is not covered under the head salary income. Hence no deduction or set off would be available.

Q-3) I have left my present job in India and has been selected overseas in a new position. I shall take up my new assignment overseas in December – 2010. Hence during F. Y. 2010-11, I would be treated as resident in India. Thus my overseas income for the rest of the financial year would also be taxed in India. Whether any rebate or concession is available to me for the overseas income since it would suffer tax in the country of origin?
-A.R.Singh, Byculla

Ans: You have made a correct guess of your tax incidence. It is correct that the overseas income shall be added to your local income till you become Non-resident. However, the overseas income which is added to your local income will entitles you to claim a rebate under Double Taxation Treaty entered by the Overseas country with India. Accordingly, in most cases the tax paid overseas is allowed to be set off against your total tax liability in India. This would lead to correction of tax payable in India to a great extent.


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