How Residential Status is determined in case of NRIs

 

Residential status is an important criterion to understand the liability of NRI to pay taxes in India as well as liability for NRI Income Tax return filing.

As per the provisions of the Income Tax Act, the taxability of income also depends upon the residential status of any individual. As a general rule,

1. In the case of Residents, their global income becomes taxable in India. Therefore, in case any Resident has also earned income outside India during any previous year, He might have paid tax in that country since the source of such income was outside India. Also, He would be liable to pay taxes in India since he was Resident in India. In such a case, there would be double taxation. However, He would be entitled to claim proportionate credit of taxes paid outside India while filling his Indian Tax Return.
   
2. In the case of Non-Residents, only income which has been accrued in India or deemed to accrue in India or received or deemed to be received in India is taxable in India. Therefore, income which has accrued outside India or received outside will not be taxable in India, and no need to show such income during NRI Income Tax return filing.
3. In the case of Residents but not ordinary Residents (RNOR), only income which has been accrued in India or deemed to accrue in India or received or deemed to be received in India is taxable in India. Further, Income which accrues or arises outside India from a business controlled in India or a profession or business set up in India would be taxable in India.

It is because of aforesaid reason, it is important to determine residential status since it will help in determining tax liability as well as liability for filing Income Tax Return by NRI.

Determining Residential Status of Person

RESIDENT

To be qualified as a Resident of India, an individual must fulfill these two conditions as follows-

1. He/she has stayed in India for more than 182 days during a particular financial year. OR
2. He/she has stayed in India for 60 days or more in total during a particular financial year. Also, they have stayed in India for 365 days or more for four years preceding the financial year.

In case none of the conditions stated above is satisfied then, the individual is categorized as a Non-Resident Indian (NRI). Also, it is to be noted that if any Indian citizen or a Person of Indian Origin (PIO) is visiting India and their total income during that particular financial year from all the Indian sources exceeds Rs. 15 Lakhs, then the above mentioned period of 60 days is to be read as 120 days in total. In other scenarios, it will be taken as 180 days in total.

NON RESIDENT

Any person, who is Not Resident in India as per aforesaid conditions, will become Non-Resident Indian.

RESIDENT BUT NOT ORDINARY RESIDENT (RNOR)

To be categorized as a Resident and Ordinarily Resident (ROR), a person shall fulfill the following conditions-

(a) He must have been a non-resident in India in 9 out of 10 previous financial years preceding that year, 

OR

(b) His period of stay in India during the last 7 previous years preceding that year has been for 729 days or less.

Further, due to recent amendment, an individual will be treated as resident but not ordinarily Resident if taxable income exceeds Rs 15 lakh and stays in India for 120 days or more (but less than 182 days) and is treated as a resident individual. Income Tax Return Filing

When should NRIs file their Income Tax Return (ITR) in India?

NRI Tax return becomes compulsory in the following situations:

1. When NRI has income from India which exceeds Rs 2.5 lac.
2. When there is a refund receivable.
3. In the case of the sale of shares and assets, if there is a capital gain or loss transaction.
4. When NRI wants to carry forward losses from the sale of shares or business.