DTA Agreements can lower tax bill for NRIs

Last updated: 17 October 2007

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Taxation can be a complicated issue for a non resident (NRI). He may be subject to tax in India on some income and further doubly taxed in both countries on another source of income. This situation of double taxation can be avoided by appropriate planning, taking into consideration the provisions of the relevant Double Taxation Avoidance Agreement ( or Tax Treaty) entered by India with the relevant country and availing the benefits, if any. An individual who is no longer staying in India, (generally referred to as a Non-Resident Indian), typically has passive income (eg: dividend, interest) and/or active income (eg: business income) streams arising from India. Because an individual has recently migrated from India, it does not automatically make him a non resident under the Indian Income tax Act, 1961 (the Act). Classification under the Act, for tax purposes, depends on the number of days stay in India during the specified period, as explained in the subsequent paragraphs. While the Act levies tax on Indian sourced income of an NRI - if he is a non resident, as defined under the Act, there could be circumstances where an NRI is liable to tax in India on his worldwide income. Residential status under the Act Under the Act, the scope of taxable income varies with the residential status of the individual. The Act prescribes two tests of residence for individual taxpayers. Each of the two tests relate to the physical presence of the individual in India in the course of the 'tax year'. An individual is said to be a resident in India in the tax year, if he is: a) Physically present in India for 182 days or more in that tax year; OR b) Physically present in India for 60 days in that tax year and 365 days or more in the preceding four tax years.

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