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Tax implications on Non Resident in India

CA Mohit Kumar 
on 18 May 2020

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Who is non-resident Indian (NRI): Residential Status

The conditions to be called as an Indian RESIDENT or NON RESIDENT are:

An individual is said to be resident in India in any previous year, if he -

(a) is in India in that year for a period 182 days or more or Or,
(b) Staying in India for 60 days in last financial year AND have stayed for 365 days in preceding four previous years.

NOTE: SIX MONTH WORD IS NOT USED AS PER CLAUSE (a)
NOTE: TWO MONTH WORD IS NOT USED AS PER CLAUSE (b)

For Indian citizen working in abroad or a crew member of Indian Ship then the first condition is applicable as per clause (a) i.e. staying in India more than 182 days or more

A PIO or Indian citizen having income less than Rs. 15 lakh other than foreign Income who being outside India comes on a visit to India will be also treated as an resident as per clause (a). i.e. 182 days or more would be stayed in INDIA

A PIO or Indian citizen having income exceeds Rs. 15 lakh other than foreign Income who being outside India comes on a visit to India will be also treated as an resident if he stayed 120 days during the previous year as per amendment made in Budget 2020.

PIO are the ones, any of his parents or Grandparents born in undivided India.

Tax implications on Non Resident in India

Illustrations - to understand the Non-resident situation

   
    

S.No.

Stay of individual in India during the financial year (Indian Citizen or Person of Indian Origin who being outside India comes to visit India during the year

Total Income excluding foreign Income

Residential Status

1

1-181 Days

Income less Than Rs. 15 Lakh

Non Resident

2.

1-119 Days

Income more than Rs. 15 lakh

Non Resident

2. Reduced period of 120 days as against 182 days for Indian citizens coming to visit India as per Union Budget 2020 - w.e.f. FY 2020-21

The following conditions are required to be fulfilled cumulatively for the individual to be considered as a resident pursuant to the amendment:

  1. total stay in India during the year should be more than 119 days; and
  2. total income, other than income from foreign sources, should exceed INR 15 lakhs; and
  3. and the period of stay in India in the immediately preceding 4 years should be 365 days or more

• The impact will be on such individuals whose period of stay is more than 119 days during the year but less than 182 days having income exceeds 15 lakh. Such individuals will be considered to be “resident but not ordinarily resident”

Important Points

Reduced period 120 days is applicable only to Indian Citizen and Person of Indian Origin

NOTE: IF NO. OF DAYS STAY IN INDIA IS LESS THAN 119 DAYS THEN IT WOULD BE AUTOMATICALLY TREATED AS NON-RESIDENT OF INDIA

Illustrations - reduced period of 120 days as against 182 days for Indian citizens coming to visit India

   

S.No.

Stay of individual in India during the financial year (Indian Citizen or Person of Indian Origin who being outside India comes to visit India during the year and stay in India in the immediately preceding 4 years exceeds 365 days)

Total Income (other than income from foreign sources)

Residence status of individual pursuant to amendment

Residence status of individual prior to amendment

Whether amendment has any Impact?

1

Less than 120 days

More than INR 15 lakhs

Non-resident

Non-resident

No

2

Less than 120 days

Less than or equal to INR 15 lakhs

Non-resident

Non-resident

No

3

120 days or more but less than 182 days

Less than or equal to INR 15 lakhs

Non-resident

Non-resident

No

4

120 days or more but less than 182 days

More than INR 15 lakhs

Resident but not ordinarily resident

Non-resident

No

5

182 days or more

Any level of income

Resident*

Resident*

No

*IN CASE SUCH INDIVIDUAL IS A NON-RESIDENT IN 9 OUT OF 10 PRECEDING YEARS OR IF SUCH INDIVIDUAL HAS BEEN IN INDIA FOR AN AGGREGATE PERIOD OF 729 DAYS OR LESS IN THE PRECEDING 7 YEARS, THEN SUCH INDIVIDUAL SHALL QUALIFY AS NOT-ORDINARILY RESIDENT

Income from foreign sources - Meaning and scope

The new provisions will be applicable only if the 'total income, other than the income from foreign sources, exceeds Rs 15 lakhs'.

“Income from foreign sources" has been defined to mean income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India)

Thus, for computing the threshold of 15 lakhs, the total income will include any income other than income that accrues or arises outside India except where such income is derived from a business controlled in or a profession set up in India

The following incomes will be includible while computing the threshold of 15 lakhs:

a) Income that accrues or arises in India or is deemed to accrue or arise in India,

b) Income that is received in India or is deemed to be received in India,

c) Income that accrue or arise outside India but is derived from a business controlled in or a profession set up in India

Examples of income includible while examining the applicability of threshold of INR 15 Lakhs

  • Dividend or interest income received from a resident in India,
  • Income from business controlled in or profession set up in India
  • Capital gain arising on transfer of a shares of a company which derives its value substantially from property situated in in India
  • Rental Income from a property situated in India
  • Capital gain arising on transfer of shares of an Indian company
  • Capital gain arising from transfer of a an property situated in India
 

Examples of income not includible while examining the applicability of threshold of INR 15 Lakhs

  • Salary income received on account of services rendered outside India
  • Dividend income arising from a overseas sources
  • Rental income from property situated outside India
  • Business income from overseas sources having no nexus with India
  • Capital gain arising on transfer of properties situated outside India
  • Interest income arising from a overseas sources
  • Citizen of India having total income exceeds Rs. 15 Lakh who is deemed to be resident in India under clause (1A).

An individual, being a citizen of India, having total income, other than the income from foreign sources*, exceeding Rs. 15 lakh rupees during the year shall be deemed to be resident in India in that 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

• Such deemed residents will be considered to be 'resident but not ordinarily resident' under the Act

The impact of the amendment is only on such Indian Citizens, having total income from Indian sources exceeding INR 15 lakhs, and who are not liable to pay tax in any country other than India by reason of his residence or domicile

Considering the adverse impact of the amendment, such person in order to not to qualify as deemed resident may possibly :

- Ensure that the income from Indian sources does not exceed INR 15 lakhs; or

- Ensure that individual qualifies as resident of some other country and some tax is payable in any country other than India; or

- Acquire citizenship of some other country with friendly tax structure. Citizenship is easily available in many countries, with tax friendly structure, on investment basis such as Austria, Cyprus, Cambodia, Dominica Grenada, Moldova

If individual qualifies to be resident of both the countries as per the test prescribed under DTAA, then tie breaker rule to be applied

Tier Breaker Rule

  • Permanent Home Permanent home means a home arranged and retained for permanent use; notintended for short duration
  • Personal relations - family and social relations
  • Economic relations - Place of business, major source of income etc
  • Habitual abode Frequency, duration, and regularity of stays that are part of the settled routine of an individual's life

Nationality Country of which the individual is a national

Competent authorities Both the countries to determine the residential status if residential status cannot be determined by applying the tie breaker rule

Tie breaker rule to be applied in the above order. Importance of tie breaker rule to increase as an individual is more likely to qualify as resident of both countries pursuant to the amendment

Implications after determination of status if residence pursuant to application of tie breaker rule

  • Resident in India on account of stay under amended law
  • Resident in India on account of deemed residency provision

If the individual is resident of India as well as resident of Treaty country (Dual Resident)

 

Apply Tie Breaker rule

Resident of other country as per tie breaker test

  • Foreign income not taxable
  • Indian Income taxable at Treaty rates

Resident of India as per tie breaker test - RNOR

  • Foreign income not taxable (unless derived from Indian Business or profession)
  • Indian Income taxable at rates under the Act for resident

Scope of Taxation and Income from Abroad

Non-resident is taxed only on income that is received in India or the income that accrues or arises in India during the Financial Year. Income that accrues or arise outside India is not taxable in the hands of Non-resident

DISCLAIMER: Every care has been taken in the preparation of this article to ensure its accuracy. The views contained in this article are personal and the contents of this document are solely for informational purpose and it does not constitute professional advice that may be required before acting on any matter.


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