NRI Taxation Consultancy

As an NRI, a common question you may have is whether there is a requirement to file Income tax returns in India. For this one needs to know if he has a taxable Income earned/accrued/ deemed to be accrued in India. In order to know whether any Income is earned/accrued/ deemed to be accrued in India, one needs to check his residential status.

Determination of Residential Status

For Individual :
To determine the residential status of an individual in a particular year, we must understand what the basic conditions are and what the additional conditions are.

Basic Conditions :
  • He is in India in the previous year for a period or periods amounting in all to 182 days or more.
    OR
  • He is in India for a period or periods amounting in all to 365 days or more during the four years immediately preceding the previous year and is in India for a period and periods amounting in all to 60 days or more in the previous year.

Note : In the case of Indian citizen who leaves India during the previous year for the purpose of employment or Indian citizen who leaves India as a member of the crew of an Indian ship or an Indian citizen or a person of Indian Origin who comes to India on a visit during the previous year, the basic condition no 2 is non-functional and their test of residency is restricted to first condition only. A person is said to be a person of Indian origin if either he or either of his parents or any of his grand parents were born in undivided India.

Conditions for determining Ordinary Resident or Not Ordinary Resident :
  • Resident in India in at least 2 out of 10 years preceeding the previous year.
  • Presence in India for at least 730 days during 7 years immediately preceeding the previous year.

Rule of Residency for Individuals :
  • Resident and ordinary resident : Must satisfy at least one of the basic conditions and both the additional conditions.
  • Resident but not ordinary resident : Must satisfy at least one of the basic conditions and one or none of the additional conditions.

Determination of Residential Status for Firm/AOP/HUF :
A firm or an AOP or an HUF is resident in India if control and management of affairs is situated wholly or partly in India. However, if control and management is situated wholly outside India it is non-resident.

Determination of Residential Status for Company :
An Indian company is always resident in India. A foreign company is resident in India only if the control and management of its affairs are wholly in India. The term “Control and Management” refers to “Head and Brain”, which directs the affairs of policy, finance, disposal of profits and vital things concerning the management of a company. Control is not necessarily situated in a country in which the company is registered.
Under the tax laws a company can have more than one residency. The mere fact that a company is also resident in a foreign country would not necessarily displace its residence in India.Control and management means central control and not day to day business of the taxpayer. Where GBM is conducted and policy decisions are taken are vital indicators of where control and management are situated.

COMMON MYTH on Residential Status of NRI

There is a common myth amongst the masses that a mere stay outside India for a period of more than 182 days makes a person immune to taxes in respect of income earned outside India. There has been a change in case of determination of residential status from year 2012 and as per the current provisions in place jut stay outside India for a period of more than 182 days is not sufficient to determine that a person is a non resident for the purpose of taxation.

One more condition that needs to be satisfied before a person can be classified as a non resident. The said condition is given below :
If a person stays in India for a period of 60 days during any previous year and his stay in India during 4 years preceeding the said previous years is 360 days or more, his residential status would be a Resident Indian for the said previosu year.

Incidence of Tax

The Incidence of tax for different tax payers is summarized as below :
Individual and Hindu undivided family

Income / Residential Status Resident and ordinarily resident Resident but not ordinarily resident Non Resident
Indian Income Taxable in India Taxable in India Taxable in India
Foreign Income      
If it is business income and business is controlled wholly or partly from India Taxable in India Taxable in India Not Taxable in India
If it is income from profession which is set up in India Taxable in India Taxable in India Not Taxable in India
If it is business income and business is controlled from outside India Taxable in India Not Taxable in India Not Taxable in India
If it is income from profession which is set up outside India Taxable in India Not Taxable in India Not Taxable in India
Any other foreign income (like salary, rent, interest, etc.) Taxable in India Not Taxable in India Not Taxable in India

Any other taxpayer (like company, firm, co-operative society, AOP’s, BOI’s, etc)
Income / Residential Status Resident in India Non-resident in India
Indian Income Taxable in India Taxable in India
Foreign Income Taxable in India Not Taxable in India

Exempt Income

The following income is exempt from taxation for NRIs :
  • Interest on notified securities or bonds and premium on redemption of such securities.
  • Interest on Non Resident External rupee account (NRE account) / Foreign Currency Non Resident (FCNR) Accounts Interest on notified saving certificates subscribed in foreign currency by an Indian citizen/person of Indian origin Income from units of Unit Trust of India (‘UTI’) acquired in foreign exchange by Indian citizen/person of Indian origin.
  • Interest on nonresident non repatriable (‘NRNR’) Deposits and other securities, bonds, savings certificates notified Interest from notified bonds (7 year dollar bonds issued by the state Bank of India notified) purchased in foreign exchange, exemption continues even after person becomes resident Interest paid by scheduled banks on RBI approved foreign currency deposits.

CONSESSIONAL TAX OF NRIs (Section 115E of Income Tax Act, 1961)
NRIs are granted a special benefit by way of an option of being taxed at concessional tax rate of 20%as regards investment income and 10% as regards long term capital gains arising from specified assets.
If income of Non- Residents include any other income other than the two above, it will be charged at normal rates as applicable to the residents.

DOUBLE TAX AVOIDANCE AGREEMENT :
India has entered into Double Tax Avoidance Agreements (DTAAs) with various countries. Taxability of Indian income for non-residents is decided as per the provisions of these DTAAs or as per the Indian Income Tax Act, whichever is more favorable to you.
Most of these DTAAs contain provisions for lower rates of tax in case of dividend, royalties, fees for technical services etc.

Whether to file your return?

If you have a tax obligation in India, the domestic tax laws of India requires that you file your IT Return. You may need to file your Returns in India under the following circumstances :

  • If you have an assessed income in India and is over and above the exemptions limit of taxable income which is Rs 300,000, thus resulting in a tax liability, you need to file tax return. Even if you have any short term or long term a capital gain which is below the exemptions limit you need to file tax return.
  • Claiming refund of taxes where taxes withheld are in excess of tax liability;
    To enable you to claim DTAA benefits in the country of your residence i.e. the country in which your global income is consolidated and taxed.

NRI Complete Tax Management Solutions

  • Determination of Residential Status;
  • Tax return filling;
  • Transfer pricing consultancy;
  • Advising about the Double tax benefits;
  • Application for Permanent Account number (PAN);
  • Tax planning;
  • Consultancy / advice on FEMA / RBI matters;
  • Certification for remittance of funds outside India;
  • Filing Income Tax / Wealth Tax Returns;
  • Advice on making investments issuing certificate for repatriation of income / assets from India;
  • Making application to RBI for various matters including sale and purchase of residential and commercial properties.