I had been an NRI in a Gulf country for a long time and returned for good in 2016. I am in receipt of Fixed Deposit interest of around ₹5 lakh and ST Capital Gains from equity of around ₹1 lakh since then as RI income. IT return from AY 2019-20 is being filed in ITR2.
Meanwhile, there was a dispute with my overseas employer on the final salary and terminal benefits and the case was pending with the overseas labor court. The Court has finally decreed in my favour, resulting in an award of ₹68 lakh. I received the amount during December ’22 and January ’23. I wish to know which ITR is relevant for my income, the category of Income and tax implications of the receipt as a Resident Indian. Please also clarify the exemptions, if any, that I can claim while filing return for AY23-24.
You received your employment-related salary and benefits pursuant to a court decree during the financial year FY 2022-23. Assuming that you qualify as ordinarily resident of India, this income is taxable during the said financial year, ie 2022-2023. This should be included in your income tax return along with your other income and asset details. Since your incomes include capital gains also, the income tax return form applicable to you is ITR-2.
We note that this income is for your employment outside India. The Income tax Act and the tax treaties that India has entered into with various countries provide for tax relief — consequent to which relief is provided to tax residents in India in the event of double taxation. As you have not mentioned the country in which you were employed, the tax reliefs that are available in general are:
If India and the other country have a tax treaty, then foreign tax credit would be available in respect of tax paid outside India (if any) on such income. FTC should be calculated based on the provisions of the tax treaty.
If India does not have a tax treaty with the other country, unilateral tax relief can be claimed in India. Unilateral relief will be the lowest of the average tax rate in India and the average tax rate in the other country.
Details of tax relief will also be need to be disclosed in the appropriate schedules in the tax return form ITR 2. Proof/documentation such as tax payment outside India, tax residency certificates, overseas tax returns, etc., may be called for by the tax office for accepting the claim.