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Common Queries faced by NRI on Taxation of Income
1. Who is an NRI?
A Non Resident Indian is a person of Indian Origin who lives in a country other than India. He is declared a NRI according to his residential status during a financial year.
2. How to determine my Residential Status?
As per Section 6 of the Income Tax Act, Residential Status of an assessee is classified into 3 types:
a)Â Â Â Â Â Resident and Ordinarily Resident.
b)Â Â Â Â Â Resident but not Ordinary Resident.
c)Â Â Â Â Â Non-Resident.
| Type/Conditions | Resident and Ordinarily Resident | Resident but not Ordinarily Resident | Non Resident |
| Conditions | Satisfies one of the basic conditions and both the additional conditions | Satisfies one of the basic conditions but not additional conditions | Does not satisfy the basic conditions |
Basic Conditions being:
- Stay of 182 days in India in Previous Year
- Stay of 60 days in India in Previous Year and 365 days or more in previous 4 years
Exception: For the following, only condition No.1 is applicable i.e. on non-fulfillment of this, basic condition is understood to not have been satisfied
1. An Indian Citizen who leaves India in the previous year for the purpose of Employment outside India
2. An Indian Citizen who leaves India in the previous year as a member of the crew of an Indian Ship
Additional Conditions:
- Stay of 2 years out of 10 years immediately preceeding the previous years
- Stay of 730 days out of 7 years immediately preceeding the previous years
Taxability of Income of persons having the above three Residential Status is as follows:
| Income | Resident and Ordinarily Resident | Resident but not Ordinarily Resident | Non Resident |
| Indian Income | Taxable | Taxable | Taxable |
| Foreign Income | Taxable | Not Taxable | Not Taxable |
3. Is Income earned abroad taxed twice?
According to Sections 90 and 91 of the Income Tax Act, 1961 credit is allowed on tax paid on Income earned abroad. Hence Tax need not be paid twice i.e. in the country of incidence and India. This is to the extent the rate of tax of that country is equal or higher than in India. There is a concept of Double Taxation Avoidance Agreement in India that helps prevent double taxation for income arising outside India.
India has Double Taxation Avoidance Agreement (DTAA) with many countries/specified territories which are as prescribed by the government.
In certain cases where there are no agreements, unilateral relief is provided by the Government in respect of tax paid on income earned abroad.
It has been held that where there is a conflict between the provisions of the Income Tax Act and the Double Taxation Avoidance Agreement, the provision that is more beneficial to the assessee will apply.
Further rate of 40% on Foreign Taxation is not considered to be a disadvantage to the assessee.
4. What is Tax Residence Certificate?
A person willing to avail the DTAA relief has to produce a Tax Residence Certificate (TRC) to prove the fact of his residence in the other country/specified territory.
This has been brought about by way of insertion of a new section 90(4) in the Income Tax Act, 1961. Earlier a person working in another country say China had to simply prove tax paid in that country to avail of the benefit. Now he has to produce a TRC for the same.
4. What are the tax-liabilities of persons leaving India, but has Income earned in India in the year of departure?
Tax needs to be paid in full, as regards Income deemed to accrue arise in India before such departure or before the end of the Financial Year in which he leaves India.
5. What are the tax-liabilities of returning NRI’s?
The residential status in India is determined based on the physical presence of an Individual in India during the tax year. Further, when a NRI is returning to India, he might lose his residential status as NRI in the same year or in 2-3 years depending on his days of stay in India. Once he becomes a Resident and Ordinarily Resident in India, his global income would be taxable in India and should be mentioned while filing the Income Tax Return in India. As per the new provisions, he is also required to mention the details of assets owned or any financial interest held by him in foreign countries.
6. What happens when an Indian has no Income per se but Assets located outside India?
In addition to Income from Abroad, what is also in the ambit of taxation is presence of assets located outside India. According to an amendment brought about by way of Finance Act 2012, Residents and Ordinarily Residents and their family members having assets located abroad including financial interest in an entity are compulsorily required to file return of Income irrespective of the amount of income.
The aim of such a move was to hunt for people who have their assets stashed away elsewhere with a motive to escape the applicability of Indian taxation.
7. What happens when Income is simply repatriated to India?
Repatriation of Money i.e. transfer of money earned abroad to India doesn’t qualify as Income Earned in India as it is a Foreign Income already taxed in a foreign country. It is simply transferred by an NRI to India either to his family or his NRE account and has no tax implication in India.
8. When does an Individual require filing of Return of Income in India?
| Nature of Income | Non Resident  | Resident but not Ordinarily Resident | Resident and Ordinarily Resident |
| Indian Income below threshold limit | No | No | No |
| Indian Income above threshold limit | Yes | Yes | Yes |
| Foreign Income | No | No | Yes |
| Foreign Assets held | No | No | Yes |
9. Time Limit of Filing Return of Income
Individuals: 31st July for the succeeding Financial Year. Other than Individuals and Company: 30th September for the succeeding Financial Year