Tax on Foreign Income in India in 2025

Did you know that failing to disclose your foreign income could cost you up to ₹10 lakh in penalties? That is why reporting and paying tax on overseas earnings on time is absolutely crucial. If you are in India and working with or earning from foreign businesses, here is everything you need to know about tax on foreign income in India to stay compliant and avoid costly surprises.

If you earn royalties, dividends, fees for technical service or interest from sources outside India, it is termed foreign income. To earn such income, the recipient of the service should be outside India, even if you are in India.

If you directly earn an income in India, it will be taxable. As a result, if you earn foreign income, you should not receive it directly. Rather, you should remit the earned money to India.

Tax on Foreign Income in India Based on Residential Status

If you are an ROR (resident or an ordinary resident), you need to pay taxes on the entire income irrespective of where you earn it. Global and Indian income are combined for tax purposes. 

The applicable tax rate is as per your income tax slab. You can enjoy tax relief under Double Taxation Avoidance Agreements (DTAA) for the countries with which India has an agreement.

The taxation norms for RNOR and NR are as follows:

• RNOR: If you do not receive income in India earned from a foreign source, it will not be taxed in India. However, income from Indian businesses will be taxed in the country. It depends on the number of years you stayed in India in the preceding 10 years.
• NR: If you earn income in India, it will be taxed except for interest, technical service fees, royalty, and capital gains of specific assets in India.

Inclusions in Foreign Assets

One of the key inclusions in foreign assets is bank accounts. Here are the other inclusions:

• Cash value insurance policies
• Financial interests in entities
• Annuity contracts
• Custodial accounts
• Immovable property
• Equity and debt interests

Residential Status Determination

You are considered an Indian resident or ordinary resident (ROR) if you stay in India for at least 182 days in a year or 365 days in the previous 4 years with at least 60 days in the present financial year.  Here are the other terms for residential status determination:

• Resident but not ordinary resident (RNOR): If you are not a resident Indian for 9 out of 10 years or have not stayed in India for over 729 days during the previous 7 years, you are an RNOR.
• Non-resident (NR): If you do not meet the conditions for ROR or RNOR, you will be considered an NR.

When Should You Declare Foreign Assets?

If you have acquired or hold foreign assets, you need to declare them under the 'Foreign Asset (FA) or Foreign Source Income (FSI)' schedule in your Income Tax Return. A non-disclosure of such assets might attract a penalty of ₹10 lakh under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

What is the Double Taxation Avoidance Agreement (DTAA)

As per the DTAA, individuals can claim tax relief for items and services taxable in India and abroad. Sections 90 and 91 of the Income Tax Act, 1961 allow tax credit for products and services under double taxation.

You can use Form 67 to claim tax credits under Section 139(1). Ensure you declare your foreign income source within the stipulated time frame to avoid penalties.

Final Words

Tax on foreign Income in India is as per the income tax slab for ROR. However, for RNOR and NR, the rules vary significantly. 

Ensure you meet the residential status criteria to adhere to the tax norms in India. This will help you avoid penalties due to tax evasion under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.