World wide income

A country that follows the residence-based system of taxation requires its tax residents—whether individuals or companies—to disclose and pay tax on all income they earn, regardless of where it originates. Once a person or entity meets the criteria for tax residency, their global income becomes taxable in that jurisdiction. Because income earned abroad may already have been taxed in the source country, many governments offer mechanisms to mitigate double taxation. These can take the form of bilateral tax treaties or domestic rules that allow a credit for foreign taxes paid.

Example:
Consider an individual who qualifies as a resident in India during a financial year. They receive ₹10,00,000 as salary income within India and an additional ₹3,00,000 from consultancy work performed in the United States. India, applying residence-based taxation, would include both amounts when computing the individual’s total taxable income, resulting in ₹13,00,000. If U.S. tax has already been paid on the consultancy earnings, Indian tax law or an applicable treaty would typically allow a foreign tax credit to prevent the income from being taxed twice.