Are You A Resident Or A Non Resident Indian? What Constitutes Taxable Income In India For A Non Resident?

You settled yourself a lavish job outside the country and living your dream. Your mom cannot stop addressing you as the NRI at every party, she goes for. Suddenly your chances are growing on the matrimonial sites due to your new found status. Therefore, Income Tax Act had a plan of its own and has established out certain conditions to define your residential status. Your taxability in India will be defined by this status.

Before we understand who is a Non Resident Indian, lets us first understand who is a Resident Indian – A person would be a RESIDENT of India for income-tax purposes if

·          During the financial year, if he/she is in India for 182 days or more

OR

·     If he/she is in India for at least 365 days during the 4 years prior that year and at least 60 days in that year.

Therefore, if you do no satisfy the condition mentioned above then you will be considered to be a NON RESIDENT INDIAN. In case you are an Indian Citizen and you leave India for employment in abroad or as a member of the crew on an Indian ship, in other words if you take up a job outside India then the 60 days minimum period will increase to 182 days. The increase in days is also applicable to you, if you are an Indian citizen or a PIO and you live outside India and you come to India on a visit. The aim behind relaxing the minimum number of days to 182 is to protect your taxability, so that you don’t get taxed as a Resident Indian. In case you decide to visit your family India and extended your stay or meet any other obligations and you end up staying in India for more than 2 months.

Besides Resident & Non Resident Indian, there is a third category that of a RESIDENT BUT NOT ORDINARILY RESIDENT, after spending so many years abroad and have returned back to India recently, you can fall in the category of Resident but not Ordinarily Resident (RNOR).  

Let’s see who is a RNOR?

You will be considered Resident but Not Ordinarily Resident in a year – if you satisfy one of the two conditions for a Resident (mentioned above) AND

·         If you have been an NRI in 9 financial years out of 10 preceding the year

OR

·       You have during the 7 financial years preceding the year been in India for a period of 729 days or less.

Please note that this is how the Income Tax Act considers your status and applies purely to your taxability in India. This cannot necessarily be applied with other rules & laws that exist in India, including those rules laid out by your very dear aunt. Before investing any money in India, NRI should get their PAN (Permanent Account Number) issued by the Government of India.

What is your taxable income for the purpose of Indian Tax Laws: If you are a NON RESIDENT INDIAN, simply put –

·         Any incomes earned by the NRIs are all taxable in India.

·         Any income earned outside India is not taxable in India.

What is your taxable income for the purpose of Indian Tax Laws: If you are a RESIDENT BUT NOT ORDINARILY RESIDENT (RNOR)

Interestingly, in case you have just returned back to India, you are allowed to keep your status as RNOR for period up to 3 financial years post your income tax return back to India. While doing so you will benefit in a big way, since your tax will be very much in line other than that of an NRI and therefore income that you will earn outside of India, while you may have returned back will continue to be not taxed in India. Therefore like an NRI –

·         Any income earned in India is taxable for you in India.

·         Any income earned outside India is not taxable in India.

You can continue this status for a period of 3 years. Therefore, once you have obtained the Resident status then all your income within and outside India will be taxable in India, excepting any acknowledgements that can be applicable under the Double Taxation Avoidance Agreement between India and the other country from where your overseas income has arisen.

What does the term “Earned” in India mean?

·        Any income received in India or the law allows it to be received in India by you or on your behalf.

·       Any income that accumulates or arises in India or income that the law believes accumulates or arises in India.

What does ‘Accrues in India’ mean?

This is laid out in Section 9 of the Income Tax Act states that this applies to everyone while considering the income that accumulates or arises to them irrespective of what their residential status is

If your answer to any of these is a YES the law will consider these incomes to have accumulated in India:-

1.   Income received from a business connection in India.

2.   Income received from any property, asset or other source of income in India.

3.   Capital gain on the transfer of a capital asset which is situated in India.

4.   Income received from salary, if the services are accomplished in India.

5. Income received from salary which is payable to you by the Government of India for any services accomplished outside of India when you are an Indian citizen.

6.   Dividend paid by an Indian company even though this may have been paid outside India.

7.  Interest, royalty or technical fees received from the Central or the State Government or from specified persons in certain circumstances.

There is a lot that goes to define what the law considers as Income Earned or Accumulated in India.

Tax Assist is a professional income tax consultancy in India for both corporate houses and individual tax payers; the latter comprising Salaried Individuals, Seafarers, Professionals and Non Resident Indians.

With the help of Tax Assist and its team of income tax professionals, taxpayers can minimize their Income Tax liability, maximize their net income and create opportunities to save for current and future needs while maintaining proper accounting standards and income tax returns which are compliant with the Law.