All about Non-Resident Taxation
Understanding non-resident taxation is crucial for individuals who have moved abroad or have income sources in India while residing outside the country. This comprehensive guide covers all aspects of non-resident taxation in India.
Tax Incidence in Case of Non-Residents
| Nature of Income | Taxability in the hands of Non-resident | |---------------------|--------------------------------------------| | Income which accrues or arises in India | Taxed | | Income which is deemed to accrue or arise in India | Taxed | | Income which is received in India | Taxed | | Income which is deemed to be received in India | Taxed | | Income accruing outside India from a business controlled from India or from a profession set up in India | Not Taxed | | Income other than above (i.e., income which has no relation with India) | Not Taxed |
Taxation for Non-Resident Individuals
In case of Non-Resident Tax Chargeability on income depends upon following:
1. Determine Residential Status 2. Determine Taxability of Income (Nature of income) In India
(A) Determining Residential Status
To find whether a person is a Non-resident Indian or not we have to first check his/her Residential Status.
To determine the residential status of an individual, the first step is to ascertain whether he is resident or non-resident. If he turns to be a resident, then the next step is to ascertain whether he is resident and ordinarily resident or is a resident but not ordinarily resident.
Step 1: Determining whether resident or Non-resident
Under the Income-tax Law, an individual will be treated as a resident in India for a year if he satisfies any of the following conditions (i.e. may satisfy any one or may satisfy both the conditions):
(a) He is in India for a period of 182 days or more in that year; or
(b) He is in India for a period of 60 days or more in the year and for a period of 365 days or more in 4 years immediately preceding the relevant year.
If an individual does not satisfy any of the above conditions he will be treated as non-resident in India.
Note: Condition given in (b) above will not apply to:
- An Indian citizen leaving India for the purpose of employment
- An Indian citizen leaving India as a member of crew of Indian ship
- An Indian citizen/person of Indian origin coming on a visit to India
Note: With effect from Assessment Year 2015-16, in the case of an individual, being a citizen of India and a member of the crew of a foreign bound ship leaving India, the period or periods of stay in India shall, in respect of such voyage, be determined in the manner and subject to such conditions as may be prescribed.
Step 2: Determining whether resident and ordinarily resident or resident but not ordinarily resident
A resident individual will be treated as resident and ordinarily resident in India during the year if he satisfies following conditions:
(a) He is resident in India for at least 2 years out of 10 years immediately preceding the relevant year.
(b) His stay in India is for 730 days or more during 7 years immediately preceding the relevant year.
A resident individual who does not satisfy any of the aforesaid conditions or satisfies only one of the aforesaid conditions will be treated as resident but not ordinarily resident.
Conclusion
In other words, following test will determine the residential status of an individual:
- If the individual satisfy any one or both the conditions specified at step 1 and satisfies both the conditions specified at step 2, then he will become resident and ordinarily resident in India.
- If the individual satisfy any one or both the conditions specified at step 1 and satisfies none or one condition specified at step 2, then he will become resident but not ordinarily resident in India.
- If the individual satisfy no conditions satisfied at step one, then he will become non-resident.
(B) Determine Taxability/Nature of Receipts
(a) Taxability of Salaries
- Salary is earned In India and
- Salary is received for services rendered in India.
- TDS provisions are applicable.
(b) Taxability of Income from House Property
- Property to be situated in India.
- Taxability is same as in case of resident for Rental Income from house property situated in India.
- TDS to be deducted by Tenant on Payment of rent to Non-resident Landlord.
(c) Taxability of Income from Business and Profession
- Income Earned by Non-Residents from business controlled or set up in India is taxable in India.
(d) Taxability of Capital Gains
- Property to be situated in India.
- Capital Gains on sale of Investments in India in securities are also taxable.
- Taxability is same as in case of Residents.
- TDS provisions are applicable.
(e) Taxability of Other Income
- Income Received in India is taxable In India.
- Interest income from FD's and saving bank a/c's in Indian bank received is taxable.
- Interest on NRE and FCNR account is tax free.
- Interest on NRO account is fully taxable.
Key Points to Remember
1. Residential Status: Critical for determining tax liability 2. Days Calculation: Count days of physical presence in India 3. Taxable Income: Only Indian income is taxable for NRIs 4. TDS Compliance: Ensure proper TDS deduction and certificates 5. Bank Accounts: Interest on NRE/FCNR accounts is tax-free
Important Considerations
1. DTAA Benefits: Check Double Taxation Avoidance Agreement benefits 2. Tax Residency Certificate: May be required for claiming DTAA benefits 3. Form 15CA/15CB: Required for remittances abroad 4. Lower TDS Certificate: Can apply under Section 197 for lower TDS rates 5. ITR Filing: Must file if income exceeds basic exemption limit
Conclusion
Understanding non-resident taxation is essential for proper compliance and tax planning. The residential status determination is the first and most crucial step, as it determines the scope of taxability. NRIs should be aware of their tax obligations and available exemptions to optimize their tax liability.
For personalized guidance on non-resident taxation, residential status determination, and compliance requirements, consult with a qualified Chartered Accountant who specializes in NRI taxation.