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Being an Indian citizen but living in foreign, do I need to pay my taxes in India?

Or being a foreign citizen but earning income from India, when am I liable to pay taxes in India?

Non-understanding of correct residential status creates a high buzz for persons residing outside India or the persons visiting foreign for most of the year. They remain confuse whether taxes are to be paid in India and quantum of such taxes, provisions if income is earned in India or outside India etc. As the saying goes in Income Tax:

'An Indian Citizen may not be resident Indian, but A Foreign Citizen may be resident Indian.'

So by today's blog, we wish to make you understand the concept of residential status and how it affects tax levy.

Residential status constitutes of two main categories - Resident or Non - resident.

Who is Resident in India?

Upon fulfilling 'ANY ONE' of the following two conditions (known as basic conditions), the person is said to be resident in India for the concerned Financial Year. The conditions are:

  1. Person has stayed in India for 182 days or more during the concerned F.Y.; or
  2. Person has stayed for 60 days or more during the concerned F.Y. and a total of 365 days or more during 4 years immediately prior to concerned F.Y.

Exceptional case

The 2nd condition mentioned above (60 days & 365 days) doesn't apply in case of

  1. An Indian citizen who has left India for the purpose of employment in foreign, or
  2. An Indian Citizen or person of Indian origin who comes to visit India.

Thus in these cases, if person stays in India for a period of 182 days or more in the concerned F.Y., he is said to be Resident in India.

Who is Non-Resident (NR) in India?

If 'NONE' of the above mentioned conditions is fulfilled, then person is to be Non-resident in India.

Difference between Ordinarily Resident (OR) and Not-Ordinarily Resident (NOR)

After deciding if a person is resident in India, next comes the question of deciding whether he is an Ordinarily Resident or Not-Ordinarily Resident.

Upon fulfilling 'ANY ONE' of the following conditions (known as additional conditions), person is said to be Not Ordinarily Resident (NOR) in India:

i. He has been Non-Resident Indian in any 9 out of 10 years immediately preceding the concerned F.Y.; or

ii. He has been in India for 729 days or less in 7 years immediately preceding the concerned F.Y.

If 'NONE' of the above conditions are fulfilled, then person is said to be Ordinarily Resident (OR) in India for the said F.Y.[D1]

How income is taxed according to different residential status?


Particulars

Levy of Tax (Yes/ No)

Ordinarily Resident

Not-Ordinarily Resident

Non-Resident

Income received or deemed to be received in India

Yes

Yes

Yes

Income accrued or deemed to be accrued in India

Yes

Yes

Yes

Income accruing outside India

Yes

No

No


Mark a note of these points:

1. Income received outside India, but subsequently remitted to India doesn't amount to receiving of income in India. 1st receipt is important for consideration;

2. While counting period of stay, continuous stay or stay at a particular location in India doesn't matter;

3. Person of Indian origin means a person who himself, either of his parents or either of his grandparents (both paternal and maternal) were born in Undivided India.

4. While computing the period of stay in India, both the day of entering in India and the day of leaving India  shall be counted in period of stay in India.

Practical examples to understand the concept better:

Case 1: Bill Gates, owner of Microsoft comes to India for 100 days every year. What shall be his residential status for A.Y. 2016-17 (F.Y. 2015-16)?

Solution: Bill Gates' residential status shall be determined in 2 steps:

Step 1: Total stay of Bill Gates in last 4 years preceding 2015-16 (Concerned F.Y.) is 400 days (i.e. 100 * 4) and his stay in F.Y. 2015-16 is 100 days. Therefore, since he has satisfied 2nd condition of the basic conditions, he is a resident in India.

Step 2: His total stay in India in last 7 years preceding F.Y. 2015-16 is 700 days (i.e. 100 * 7), he satisfies the  2nd condition of the additional conditions, hence he is Not-Ordinarily Resident (NOR) in India.

Thus, for AY 2016-17, Bill Gates shall be resident but Not Ordinarily Resident (NOR).

Case 2: Sachin, an Indian citizen, leaves India on 22nd September 2015 for the first time, to work as an employee of a company in America. What shall be his residential status for A.Y. 2016-17 (F.Y. 2015-16)?

Solution:  During the F.Y. 2015-16, Sachin was in India for 175 days i.e. 30 (April) + 31 (May) + 30 (June) + 31 (July) + 31 (August) + 22 (September). Since he is leaving India for purpose of employment, hence 2nd condition of basic condition shall not be applicable for him. He doesn't fulfill the 1st condition of basic conditions also. Hence he shall be Non-Resident in India for F.Y. 2015-16.

If you still find difficulties in determining residential status or have problems related to tax levy in any of the residential status, feel free to reach us. We are working hard so that you can live a tax-tensions-free life.


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Category Income Tax, Other Articles by - Hardik Lashkari 



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