Should a Resident Indian pay Tax on Profits of hisForeign Company
This is Raghu from Karnataka. I have a business in the United States which is doing quite well. I am looking to wire my foreign earnings to India. I see that the Tax policies here are very complicated & different CA's are offering me different advices. I need an expert consultation in this regard. I have described my situation below clearly. Please go through it let me know what exactly I should do so that my taxes are minimal.
I have an LLC in the United States for which am the sole owner. I have tied up with an ecommerce Website in the US that takes orders from people Internationally (just like ebay). Am selling a product on that website. I have found this product in China, which am selling in the US under a brand of my own. My partner website is currently taking pre orders for my product & my sales have crossed over $40,000 in just 1 month. It will continue to take pre orders for the next one month. Of these $40,000, only 25% of the orders are from USA. The rest are from various countries like Australia, Singapore, Japan etc. So only 25% of the income is generated from the customers living in USA.
Since these are pre orders, I will have to ship the product only after 45 days. In the mean while, my partner website will transfer me the funds for these preorders to my business account in the US. Am planning to wire this $40,000 to my personal bank account in India as soon as possible as the situations are very volatile in the US as TRUMP was elected. Since these are pre orders, am planning to show the US govt that all the money has been used for manufacturing & there are no profits left. But the problem is with the IT people over here. The tax departments have tightened & am worried if I might have to pay the Tax on this amount. I have a 70% margin & I dont want my hard earned money to go into the pockets of the corrupt politicians here (as that is what happens to Taxes in India). So, is there a way I can bring this money to India & evade Taxes? Please advice.
Am aware that Taxation is based on Residency & am a resident Indian. Please advice me on ways to bring this money to India & ways that will not attract the IT people on me.
Asked 1 year ago in Income Tax from Bangalore, Karnataka
as you said you are resident indian , so income earned by you globally is taxable in india.
There are ways by which you can reduced your taxable income.
1) you can file income under business or profession ( ITR 4) and can claim all the expenses incurred to earned this revenue.
2) you can file income on presumptive basis under section 44ad then you are only required to pay taxes on net off 8% of the revenue earned less deductions claim under various sections.
i.e only 8% of the revenue earned is considered as income from the business.
i think second option is suited in your case.
Thanks for the answer Mam. I have gone through the section 44AD completely & have a few follow up questions.
1) The rule says "Any Resident Indian" can take advantage of this scheme. But I guess, if an Individual has to carry a business in India, he should have some license to do that. May be a Shops & establishments registration or a Vat License to carry out the business as a sole proprietor. I dont have any of these. Do you suggest me to incorporate One? Is it necessary? If Yes, are Sole proprietors also eligible in this scheme? Can't I show this transaction as business opportunity I received at an Individual Level?
2) I will be remitting about 40 Lakh rupees to my Indian Bank account of which 8% is considered as my income according to the section 44AD. Will it be sufficient if I pay the tax for this 8%? Wont I have to pay anything extra? The rule doesnt mandate that the additional income has to be declared. A few of the websites I read say its optional & there will be no questions about books or money withdrawl or deposits. So is it going to be a problem if I dont declare the additional income?
3) I have a margin about 70% on this product. Will I be able to keep all this money in my Bank account & use it as I wish? Am planning to purchase a 2BHK Flat with this money. Will the IT officials fall on me & ask to pay the additional 30% tax on these 40 Lakhs once I purchase the property?
Thanks A LOT
Asked 1 year ago
Your global income will be taxable in India. You may also have to pay taxes in US. However, you can take credit of taxes paid in US.
Thanks and Regards,
CA CS B.Com
Thanks for reverting.
1) you can run a business as an individual. but yes you do required to go for VAT registration, as you are exporting goods. and for VAT registration you need to have a commercial space and if there is a commercial space then you need to have shop and establishment registration.
yes these two above registrations are compulsory.
2) yes , it is sufficient if you go with 8% income under section 44AD, no questions will be raised on remaining income. as total turnover will be mentioned in your return and 8% will be showed as income, so your are disclosing every thing.
3) after paying tax , you can utilized income as you wish.
As per section 6 Your global income will be taxable in India.
To avoid double taxation you have to check DTAA.
You can File ITR 4
You can file ITR 4S then you have to show profit more than 8% of Gross turnover or gross receipts.
For any further clarification feel free to contact us.
44AD is applicable only if your sales are less than 2 Crore for the FY 2016-17. If it crosses the mark, then you cannot show profits @ 8% and will have to pay tax @ 30% after deducting all your legitimate expenses.
Trust this clarifies your query.
Feel free to call / get back in case of further clarifications.
Rohit R Sharma
BCOM, ACA, LLB-GEN, CERT. FAFP