Mrs. Sudha Sharma, aged 61 years, is married and settled in Calcutta. She is a Hindustani classical singer and composer who performs concerts in…

CA Final · Direct Tax Laws and International Taxation · RTP · May 2025
Mrs. Sudha Sharma, aged 61 years, is married and settled in Calcutta. She is a Hindustani classical singer and composer who performs concerts in India and Country M. She visits Country M every year during the music season in October to participate in the Mega music concert held there. For the rest of the year, she performs concerts in India. Income from concerts held - In India -10 lakhs In Country M - CMD 12,245 Tax deducted in Country M in October, 2024 in respect of income earned by her in that country was 2500 CMD. She earns income of CND 10000 by way of royalty in respect of copyright of her musical compositions in Country N. The royalty is paid to her every year on 25th March after deduction of tax@10%. In India, she has interest income of 4 lakhs from bank fixed deposits in her name and - 25,000 from savings bank account. She pays medical insurance premium of 27,000 to insure her health and - 30,000 to insure the health of her husband, a resident aged 64 years. She deposits - 1.50 lakhs in public provident fund and 3 lakhs in five-year fixed deposit in the name of her son, Mr. Sahil. The conversion rates are as follows TT buying rate 30.9.2024 31.10.2024 28.2.2025 31.3.2025 Country M dollar (CMD) 80 84 78 80 Country N dollar (CND) 80 82 78 79 India has no double taxation avoidance agreement with Country M but has a DTAA with Country N. Relevant Extracts of DTAA between “India - Country N" ARTICLE 12 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royalties and fees for included services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. Article 23 ELIMINATION OF DOUBLE TAXATION 3. The amount of tax paid, under the laws of Country N and in accordance with the provisions of the Agreement, whether directly or by deduction, by a resident of India, in respect of income from sources within Country N which has been subjected to tax both in India and Country N shall be allowed as a credit against the Indian tax payable in respect of such income but in an amount not exceeding that proportion of Indian tax which such income bears to the entire income chargeable to Indian tax. Compute the total income and net tax liability (taking into account the foreign tax credit) of Mrs. Sudha Sharma for A.Y. 2025-26, if she has opted out of the default tax regime.

Suggested Answer and Working Notes:

Computation of net tax liability of Mrs. Sudha Sharma for the A.Y. 2025-26 Particulars Particulars ₹ Profits and gains of business or profession From concerts held in India 10,00,000 From royalty received from Country N [CND 10000 x 79 (being conversion rate as on 31.3.2025 - Rule 115)] 7,90,000 From concerts held in Country M [CMD 12,245 x 80 (being conversion rate as on 31.3.2025 – Rule 115) 9,79,600 27,69,600 Income from Other Sources Income from bank fixed deposits in her name 4,00,000 Income from savings bank account 25,000 4,25,000 Gross Total Income 31,94,600 Less: Deduction under section 80C Deposit in PPF 1,50,000 Five year fixed deposit in the name of her son (does not qualify for deduction under section 80C) - 1,50,000 Under section 80D Medical insurance premium to insure her health and health of spouse (₹ 57,000, restricted to 50,000, being the maximum allowable for senior citizens) 50,000 2,00,000 Total Income 29,94,600 Tax on Total Income Income-tax [₹ 1,10,000 (upto 10,00,000) Plus - 5,83,380 @30% of 19,94,600] 6,93,380 Add: Health and Education Cess @4% 27,735 7,21,115 Average rate of tax in India (i.e.,7,21,115/29,94,600 × 100) 24.08% Foreign Tax Credit Lower of tax payable under the Income-tax Act, 1961 on income from profession and foreign tax payable on such income Tax covered under India-Country N DTAA: 78,000 [Lower of 1,90,900 (i.e., 24.08% x 7,90,000) and - 78,000 (₹ 78, being the conversion rate as on 28.2.2025 as per Rule 128 x CND 1000)] Tax paid in Country M: Country M [Lower of 2,35,800 (i.e., 24.08% x 9,79,600) and - 2,00,000 (₹ 80, being the conversion rate as on 30.9.2024 as per Rule 128 x CMD 2500)] 2,00,000 2,78,000 Net tax liability (₹ 7,21,115 - 2,78,000) 4,43,115 Net tax liability (rounded off) 4,43,120 Note As per Rule 115, for computing income from profession of Mrs. Sudha Sharma, the TT buying rate as on 31.3.2025 has to be considered. Royalty income from Country N and income from concerts in Country M constitute her income from profession, since she is a singer and a composer. As per Rule 128, for computing foreign tax credit, TT buying rate as on the last day of the month immediately preceding the month in which tax was deducted or paid in that country has to be considered. Foreign Tax Credit has been computed accordingly. As per Article 12(1), royalty income arising in a Contracting State (Country N, in this case) and paid to a resident of another Contracting State (Mrs. Sudha Sharma, a resident of India, in this case) may be taxed in that other State (India, in this case). Credit for such tax paid by Mrs. Sudha Sharma in Source State, i.e., Country N, in this case, would be available for an amount not exceeding that proportion of Indian tax which such income bears to the entire income chargeable to Indian tax.

Topics: Double Taxation Relief

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