Ordnung in your Taxes

Navigating the Welteinkommensprinzip (Worldwide Income), the DTAA "Progression Clause", and the Flat Tax on Indian Investments.

Tax Residency: Unlimited Liability
DTAA: Exemption with Progression

1. The "Progression Trap" (Progressionsvorbehalt)

The most misunderstood concept. Under the DTAA, Indian Rental Income is "Exempt" from German tax, BUT it is added to your German income to determine your Tax Rate.

How it works

1. Finanzamt calculates your theoretical tax rate on (German Salary + Indian Rent).
2. They apply that higher rate solely to your German Salary.

Base German Salary: €60,000

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2. Kapitalertragsteuer (Flat Tax)

Investment Income (NRE Interest, Dividends, Capital Gains)

Investment income is taxed separately from your salary at a flat rate. Indian "Tax-Free" NRE interest is FULLY TAXABLE here.

Base Tax (Abgeltungsteuer) 25.00%
Soli (5.5% of Tax) ~1.375%
Church Tax (Optional) 8% or 9%
Total Effective Rate ~26.38% - 28%
Sparer-Pauschbetrag: First €1,000 (Single) / €2,000 (Couple) of investment income is tax-free per year.

3. Income Matrix (DTAA)

German Salary

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Germany: Fully Taxable.

India: Exempt.

Includes Social Security (Health, Pension, Unemployment, Care).

NRE Interest

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Germany: Taxable (26.38%).

India: Tax Free.

Since India tax is 0, no Foreign Tax Credit (Anrechnung) is available in Germany.

Indian Rent

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Germany: Exempt (Article 6 DTAA).

Progression: Increases rate on other income.

Must be declared in Anlage AUS.
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The "Kirchensteuer" Warning

If you declared yourself as Catholic, Protestant, or Jewish during city registration (Anmeldung), 8% or 9% of your income tax liability is added as Church Tax.

Example:
If your Income Tax is €10,000:
+ Soli (5.5%): €550
+ Church (9%): €900
Total Tax: €11,450
Tip Check your Payslip for "KS" or "KiSt". Opt-out requires formal "Kirchenaustritt" at the Standesamt/Amtsgericht (Fee ~€30).