Question regarding RNOR Taxation: Advice Needed

Hi Anita!

Your situation involves the RNOR (Resident but Not Ordinarily Resident) status and taxation of income earned while physically present in India but paid by a US employer.

Here’s a quick overview and guidance:

1. RNOR Status & Taxability

• RNOR status means you are considered a resident of India but with certain limited tax liabilities compared to a normal resident.

• Under Indian tax laws, only income earned or received in India or income accrued or arising in India is taxable for an RNOR.

2. Income Earned While Working from India (Remote Work)

• You physically worked in India for about 8 months.

• Your salary was paid by the US company and credited to your US bank account.

3. Is This Income Taxable in India?

• Salary income for services rendered in India is taxable in India regardless of where it is paid or credited.

• The fact that the income was paid to a foreign bank account and tax was deducted in the US (TDS) does not exempt you from filing and paying taxes in India on income earned for work physically performed in India.

• Hence, this income is liable to Indian income tax.

4. Double Taxation Avoidance Agreement (DTAA)

• India and the US have a DTAA to avoid double taxation.

• You can claim credit for taxes paid in the US (TDS) against your Indian tax liability.

5. Filing Requirements

• Since you were resident in India (RNOR), you are required to file an Indian Income Tax Return (ITR) declaring your global income, including salary from the US.

• Report your income earned while working in India and claim foreign tax credit for US tax paid.

6. What Should You Do Now?

• File your pending Indian tax returns for FY 2021-22 or relevant years.

• Declare your US salary income earned during the period you worked in India.

• Claim foreign tax credit for US TDS.

• Pay any balance tax payable (if any) along with interest for delayed filing/payment.

7. Additional Points

• Your income earned while physically working in the US is taxable in the US and not taxable in India if you qualify as RNOR.

• Income earned during your absence from India is outside Indian tax jurisdiction.

If you want, I can help you draft your ITR or guide you through the process. Also, do you have Form 16 or income proof from the US employer? That will be helpful.

Bottom line: Yes, you should have filed and paid taxes in India on income earned during your stay and work in India, even if it was paid abroad. Better to regularize now to avoid penalties.