1. State taxes – What’s the fuss about
The concept behind tax laws in general has been to ensure that income is not doubly taxed. In countries like USA and Canada, apart from the impost of federal taxes, the respective states impose taxes. The taxes that the states impose are limited to the income earned in that state. Needless to state, such tax could vary from state to state. Most states have either a flat or a progressive system of taxation. In the system of a flat rate, which is also called single rate structure, a single rate of tax is applied irrespective of income levels.
Under Indian tax laws, taxes paid in the overseas country are not allowable as a deduction under the Income-tax Act, 1961 (“the Act”). Consequently, state taxes paid in the respective overseas jurisdiction is not allowable as a deduction under the provisions of section 40(a) (ii) of the Act. Explanation 1 to Section 40(a)(ii) of the Act specifically provides as follows:
“For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, any sum paid on account of any rate or tax levied includes and shall be deemed always to have included any sum eligible for relief of tax under section 90 or, as the case may be, deduction from the Indian income-tax payable under section 91.”
This story is from the June - July 2022 edition of UNIQUE TIMES.
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This story is from the June - July 2022 edition of UNIQUE TIMES.
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