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.

What are the Deductions and Exemptions available to NRI under Income Tax?

NRIs are a major contributor to Indian GDP in terms of bringing foreign remittance to India every year. They are also the brand ambassador of India. Tax treatment of NRIs in India are at par with that of Resident with some differences.

 

In this write-up, we would be discussing the NRI tax in India.

While determining NRI Tax in India, the first question which comes to mind of every NRI is about the treatment of their foreign income, i.e. whether foreign income is taxable in India?

The answer will depend upon facts and on case to case basis.

Generally, NRIs are not liable to pay taxes on income earned outside India, but there may be instances where foreign income is taxable in India.

Residents in India are liable to pay taxes on their global income. But in the case of a Non-Resident Indian (NRI) or Resident but Not Ordinary Resident (RNOR), income earned by them abroad is not taxable in India. However, any income generated through their investments inside India will be taxed as per the Indian Tax rules and regulations. 

Therefore, residential status is a very important factor to determine NRI Taxation in India.

NRI Tax Return Filing

The due date for filing an NRI Tax return in India is 31st July of every year. Any non-residents whose annual gross income is above Rs. 2.5 Lakh in a particular financial year is required to file their tax return in India on or before the due date. The following are the categories of income liable to be taxed-

1. Income earned from a business setup in India.
2. Any capital gains from selling the assets such as shares, mutual funds, etc. situated in India.
3. Income accrued as salary or from a profession based in India.
4. Income from house property or rental property.
5. Income from other sources such as interest on bank accounts or NRO deposits, gifts, dividends etc.

 Deductions and Exemptions available to NRI while computing their tax liability:

Like Residents, Non-Resident Indians are also entitled to certain exemptions and deductions per the Income Tax Act. Same are provided as under:

1. Any Income accrued or arise in the NRE account is exempted in the case of NRI.
2. Payment made against children's tuition fee: Any payment is made to a school, college or educational institution within India, as tuition fees for full-time education of any two children.
3. Premium paid for life insurance: In this case, the insurance policy must be in the name of the NRI or their spouse or children. Also, the premium paid should be less than 10% of the total sum assured in the policy, or else it is liable for tax in India.
4. Unit-Linked Insurance Plan (ULIP): For a deduction under Section 80C, life insurance covers are sold along with ULIP. It helps in maximizing the tax benefits to the NRIs.
5. Investments made in Equity Linked Savings Scheme (ELSS): This has emerged as one of the best options to claim deductions of up to Rs in recent years. 1.5 Lakh in taxes. 
6. Repayments made against loan principal for purchase of house property: A deduction on repayment of loan taken for purchasing or making a house property is allowed in the tax computation.
7. Deduction on income from house property: NRIs can easily claim a deduction on incomes accrued from house property in India. They can claim deductions while paying property taxes and on the home loan interests. 
8. Deductions provided under Section 80D: A deduction is allowed on the premium paid for a health insurance policy.
9. Deductions under Section 80E: NRIs can claim a deduction on interests paid against an education loan. However, it cannot be claimed on the principal sum amount of the loan.
10. Deductions under Section 80G of Income Tax Act: Deduction can also be claimed on any donations made for a social cause by the NRI in India.
11. Deductions under Section 80 TTA: Any income accrued as interest on the savings bank account can be claimed for deductions. Faceless assessment income tax

Deductions not allowed to NRI: 

Some sections of the Income Tax Act, 1961 also provide conditions under which NRIs' deductions are not allowed while filing Income tax in India. These are as follows-

1. Investments under Section 80C: Any income generated through the following sources are liable to taxes and not deductions-
2. Investments in PPF after their NRI status are not allowed.
3. Investments made in the National Savings Certificate (NSC).
4. Investments made in Senior Citizen Savings Scheme.
5. Investments in a five-year post-office deposit scheme. 
6. Investments under Section 80CCG: Any deduction on the investment made in the Rajiv Gandhi Equity Savings Scheme (RGESS) is not allowed 
7. Deductions under Section 80DD and 80DDB to differently-abled persons: NRIs are not allowed for any deductions on maintenance and medical treatment of any differently-abled person dependent on them. 
8. Deduction under Section 80U for differently-abled persons: If the taxpayer is himself suffering from a disability, even then not allowed.
9. Exemption from income through the sale of property: Any long term capital gain on property is subject to be taxable. No exemption is provided to NRIs in this case.

Accordingly, all the factors above are important in determining the applicability of NRI Taxation in India.

 

A Complete Guide to NRI Taxation in India

A foundation of any economy lies in the tax collected from the citizens of the country.

Non Resident Indians or NRIs as they are popularly called are major contributor of taxes in India. In this write up we will try to understand NRI Taxation in India in brief.

NRI Taxation laws fall on those people who earns outside the country and it is to be noted that their perks and rules are quite different compared to the people living and earning in India. 

 Who are considered to be a NRI?

A person is considered to be a Non-Resident Indian when they fall under any of the below mentioned categories,

 

•     The person needs to be in India for 182 days or more during a financial year
• Or
•        If the person has been in India for 365 days in the preceding 4 years and for at least 60 days in the present year.

Further, an Indian citizen whose Indian income exceeds Rs 15 lac during the previous year shall be deemed to be resident in India in that previous year, if He is not liable to

tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.

Why determining residential status is important?

In case Non Resident becomes Resident, he would be liable to his Foreign Income Taxable in India. This is because in case of Residents, His global income becomes taxable in India.

However, He would be eligible to get tax credit of doubly taxed income in home country as well as source country. This is an important aspect of NRI Taxation in India.

Therefore, NRIs would be taxed according to the NRI Taxation system prevalent in India.

 Is all NRI income taxable?

Not all incomes of NRIs are taxable in India. Only income earned in India through source in India is taxable in India.

 Some components of NRIs income however are taxable in India and they are listed below:

 

•   Salary received in India
•    Salary received for providing services in India
•    Income from selling any Indian property
•    Capital gains in India
•   Transfer of asserts that is situated in India
•    Fixed deposit income
•   Interest earnings from savings account

Under what situation NRI income is taxable?

 NRI Tax in India would be applicable in case his income from India exceeds maximum amount not chargeable to tax i.e Rs 2,50,000. Also, in case His tax liability is more than Rs 10,000, He would also be liable to pay advance tax in India. Also, he needs to file his tax return in India on or before due date i.e 31^st July every year.

 How to file the returns?

Tax laws in India are complicated. Also, in case of NRIs whose foreign income taxable in India, expert knowledge of DTAA is required in order to provide treaty benefits. Therefore, it is advisable that NRIs should get some professional help from CA or tax consultants in order to file their tax returns in India. They would guide you throughout the process and would also advice you the best ways to get all the NRI Taxation benefits.

 

Ezybiz India is one such Tax and Business Advisory firm wherein you would get experienced CAs that would guide you through the process completely at the most affordable prices. They would also advice on the Treaty benefits and other tax planning to minimize your tax liability.