How is your residential status relevant for taxation?
The taxability of an individual depends upon his residential status in India, which changes every financial year. Taxability in India depends on his residential status and it has nothing to do with his citizenship. An individual may be a citizen of India but can become a non-resident for a particular year and vice versa. The following table details the relevance of the residential status of an individual in India and the taxability of his income.
|Residential Status||Taxable incomes|
|Resident & Ordinary resident (ROR)||Global Incomes of the Individual|
|Resident but not ordinary resident||Income earned in India will be Taxable in India|
|Non Resident||Income earned in India will be Taxable in India|
Who is a Resident?
When an individual satisfies any one of the following 2 conditions, he is considered as a resident.
a) He has been in India for a period of 182 days or more
b) He has been in India for total of 365 days or more during 4 years immediately preceding FY 2022-23 and has been in India for a period of 60 days or more during FY 2022-23.
However, in the case of
- an Indian Citizen resident of India leaving India for taking up employment or joining as a crew of a ship in the relevant previous year
- an Indian citizen or a person of Indian origin, who being outside India comes on a visit to India in the relevant previous year
the period of 60 days referred in (b) above will have to considered as 182 days for treating him as a Resident.
From the financial year 2022-23, in the case of an Indian Citizen or Person of Indian Origin whose total income (other than foreign sources) exceeds Rs.15 lakh the said period of 182 days or more has to be referred as 120 days or more. Hence such individuals become residents even when their stay in India is less than 182 days but when it exceeds 120 days.
Further from the financial year 2022-23, a deeming provision is introduced by virtue of which an individual who is a citizen of India who is not liable to tax in any other country will be deemed to be a resident in India. The condition for deemed residential status applies only if the total income (other than foreign sources) exceeds Rs 15 lakh and nil tax liability in other countries or territories by reason of his domicile or residence or any other criteria of similar nature.
Thus an individual who does not satisfy any of the above said 2 conditions is a Non-Resident.
Resident and Ordinarily Resident (R & OR)
Although there is no specified definition for R&OR, it has become a popular jargon on account of the taxability of global income in case of a Resident who is not a Not Ordinarily Resident, is said to be Resident and Ordinarily Resident who fulfills both the conditions of:
Not being a non- resident in 9 out of 10 Financial Years preceding the current year
Whose stay in India totals to 730 days or more in 7 financial years preceding the current year.
Thus, a non-resident relocating to India would remain not ordinarily resident in India for the first 9 years of his stay in India. Similarly, in case where a person who is resident in India goes abroad and ceases to be resident in India for at least 2 years, he would upon his return, be treated as, not ordinarily resident for the next 9 years.
The global income of a returning Indian is liable to tax in India once he is R & OR, which will be subject to reliefs and provisions of the Double Tax Treaty, if any, between India and the country from which such income arises.
Tax Exemptions from Income Tax for NRI (Non Resident Indian)
Income from the following investments made by NRIs / PIOs out of convertible foreign exchange is totally exempt from tax:
- Deposits in Non-Resident External Rupee Account (NRE)
- Deposits in Foreign Currency Non-Resident Account (FCNR)
- Income from Units of Unit Trust of India and other mutual funds and from Venture Capital Company/fund
- The tax exemptions relating to NRE bank deposits will cease immediately upon the NRI / PIO becoming a resident in India whereas the interest on FCNR bank deposits will continue to be tax free as long as the NRI maintains the status of Resident but Not Ordinarily Resident or until maturity, whichever is earlier.
Further Dividend Income from a domestic company shall be taxable at the rate of 28.5% in the hands of Non-Residents unlike at normal tax slabs in the case of residents.
How RMC can help you in you in filing your tax returns?
RMC understands basing on discussion with the NRI, their different incomes that become taxable in India.
RMC then guides the NRI’s in understanding the tax laws in India, prepare a draft tax return, and arrive at the tax liability to be discharged or refund if they are eligible for a refund.
RMC obtains various inputs for the disclosures to be made in their tax returns and guides on what are mandatory disclosures and what are optional.
RMC on their behalf files their tax returns ensuring the compliance with Income Tax act.
RMC also addresses the notices if any received by the clients to resolve them in compliance with the Tax Laws.
If you want to file your tax returns in India, write to us at [email protected]