Indian national working abroad? Know taxability

 







New Delhi: Taxability in India depends on residential status, source of income and place of receipt of income. Residential status is determined on the basis of physical presence of an individual in India during a financial year (FY) and the preceding 10 FYs. Residential status needs fresh determination for each year.

You are considered an Indian resident for a financial year:
When you are in India for at least 6 months (182 days to be exact) during the financial year
When you are in India for 2 months (60 days) for the year in the previous year and have lived for one whole year (365 days) in the last four years

If you are an Indian citizen working abroad or a member of a crew on an Indian ship, only the first condition is available to you – which means you are a resident when you spend at least 182 days in India. The same is applicable to a Person of Indian Origin (PIO) who is on a visit to India. The second condition is not applicable to these individuals. A PIO is a person whose parents, or any of his grandparents were born in undivided India. You are an NRI if you do not meet any of the above conditions.

An individual qualifying as resident and ordinarily resident (ROR) is taxable on their worldwide income in India and is required to report all foreign assets in the India income tax return (ITR). The income earned from such foreign assets during the relevant year, along with the nature of income and head of income under which such income has been offered to tax in the ITR, needs to be reported in relation to each foreign asset.

Taxability:

An NRI’s income taxes in India will depend upon the residential status for the year. If the status is ‘resident,’ their global income is taxable in India. If the status is ‘NRI,’ their income which is earned or accrued in India is taxable in India.

Salary received in India or salary for service provided in India, income from a house property situated in India, capital gains on transfer of asset situated in India, income from fixed deposits or interest on savings bank account are all examples of income earned or accrued in India. These incomes are taxable for an NRI. Income which is earned outside India is not taxable in India. Interest earned on an NRE account and FCNR account is tax-free. Interest on NRO account is taxable for an NRI.

For long-term capital gains made from the sale of transfer of these foreign assets, there is no benefit of indexation and no deductions allowed under Section 80. But one can avail an exemption on the profit under Section 115 F when the profit is reinvested back into:
Shares in an Indian company
Debentures of an Indian public company
Deposits with banks and Indian public companies
Central Government securities
NSC VI and VII issues

ITR Filing:

NRI or not, any individual whose income exceeds Rs 2.5 lakh is required to file an income tax return in India. When an NRI invests in certain Indian assets, he is taxed at 20%. If the special investment income is the only income the NRI has during the financial year, and TDS has been deducted on that, then such an NRI is not required to file an income tax return.

Double taxation:

NRIs can avoid double taxation (meaning: getting taxed on the same income twice in the country of residence and India) by seeking relief from DTAA between the two countries. Under DTAA, there are two methods to claim tax relief – exemption method and tax credit method. By exemption method, NRIs are taxed in only one country and exempted in another. In tax credit method, where the income is taxed in both countries, tax relief can be claimed in the country of residence.

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