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Investors diversify their portfolios by investing in global markets. However, when investors liquidate these investments, they encounter tax obligations in both their country of residence and the country where the investment was made. Schedule FSI and Schedule TR need to be filled only if an individual has paid taxes on foreign income and is claiming tax relief against that in India. This article covers all that you need to know about Schedule FSI and TR for NRI, how to file FSI, and how to get relief.
Schedule FSI (Foreign Source Income) - It is a schedule in the Indian Income Tax Act that mandates resident Indians to pay tax on their global income. Therefore, if an Indian resident earns income from a country outside India, he/she is required to pay tax on the same and report it under schedule FSI while filing their ITR. However, there is no need to report any losses under this schedule.
Schedule TR (Tax Relief) - A resident Indian earning income in a foreign country is required to pay tax in both countries, which results in double taxation as the same income is taxed twice in both countries. In order to avoid double taxation, India has entered into a Double Taxation Avoidance Agreement (DTAA), wherein taxpayers can claim relief from dual taxation through the following ways -
Any individual earning income from a foreign source is mandatorily required to report its details in Schedule FSI, irrespective of whether they are claiming any credit for the taxes paid outside India, and also disclose the details of the tax relief claimed in India.
Resident Indians having income from a foreign source are required to fill out schedule FSA in ITR-2. NRIs or non-resident Indians are not required to report their foreign income in ITR-2. Income earned by NRIs in India is taxable if it exceeds Rs.2.5 lakhs per annum.
You have to enter the details of the income earned in a foreign country in your ITR-2. Below are the instructions you must follow to fill out the schedule FSI in ITR-2 -
You are required to mention the tax amount paid outside India on the income generated from a foreign country in Column C.
Individuals who are paying any tax amount outside India can claim tax relief in India after reporting the amount in the ITR-2 form. Non-resident Indians having income from a source that is taxable in India have to file their ITR. Taxpayers are also required to report their foreign assets and liabilities in ITR-2 under FSI, TA, and TR schedules. In other words, NRIs have a taxable income source outside India and can submit the schedule TR.
First, visit the official portal or website of the Income Tax Department. Navigate through the return filing section and select ITR-2. Now, navigate to the return filing section and select ITR-2. Follow the below instructions on how to fill out the schedule TR -
Once you have filled out the ITR-2 form, you can go ahead and submit it. Also, make sure you verify it to get the acknowledgment form.
Taxpayers are required to report their foreign incomes for the financial year under consideration, i.e., from 1st April to 31st March.
For example, if a taxpayer is supposed to file his/her ITR for the Financial Year 2022-23. They have to report the foreign income earned between the period of 1st April 2022 and 31st March 2023.
Schedule FSI and Schedule TR must be completed if any foreign income is subject to taxation in both India and another country and if a tax credit is being claimed in India for such income. If you have any income and claim credits, you must complete these two schedules. Schedule FA is only mandatory for individuals who are ordinary residents of India. As your residential status for the relevant financial year is non-resident, you are not obligated to provide any information in this schedule.
In the case of income from salary and other sources within India, then they are required to file ITR-1. And, in case of additional income from different sources outside India, then they are required to file ITR-2.
Schedule FSI in ITR-2 allows taxpayers to report the details of income from foreign sources, including the country-wise breakdown of taxes, income, and tax relief. Schedule TR is used to report tax relief.
If you have foreign income but not claiming any tax relief or planning to do so, you do not have to fill out these schedules. However, you must report your total income in the main sections of the ITR-2 form.
