How to save tax on foreign assets
The very word tax sends jitters in the minds of people. Tax is inevitable, incomprehensible and painful to say the least. What makes it more complicated are the changing tax laws. This becomes challenging for even the best professionals. However, everyone seeks means of not giving or at least saving on or minimising the amount of tax that he has to pay.
The income tax act provides special incentives to the NRIs by providing procedural simplification, fixed rate of taxation and by taxing on real income which is to say that income is computed in foreign exchange. Foreign investments or foreign assets give a lot of capital gains in most of the cases. Tax arising on these can be saved by reinvesting the proceeds further.
The tax law prevailing in the foreign nation will also pay a pivotal role in calculating the tax. Therefore, the double tax avoidance agreement between India and the country concerned plays an important role in providing certain relief in the taxation.
This treaty which is bilateral or multilateral actually comes as a boon for many Indians. This helps in getting rid of paying double tax on the same income. This is done by either exempting tax on income in one country or by providing credit for being a tax payer in another country.
One should be completely aware of the state tax responsibilities because they help in charting out the tax issues in a better manner. It is also advisable to seek legal or professional advice over the financial matters so as to be fully aware of the decisions and investment mechanisms that might lead to a lower tax rate.