Recent changes in residential status as per Income Tax Act – All you wanted to know in a nutshell

There is a change in the provisions for determining residential status, as per the amendment in Income tax act.

The general rule will remain as same i.e. any person who is in India for more than 182 days will be treated as resident in India.

OR, if he was in India for 60 days or more in the current FY and 365 days or more in the previous 4 FY, he will be treated as a resident in India.

However, the above rule had a benevolent provision, saying that in the case of an Indian Citizen or a Person of Indian Origin (PIO), who comes back to India can stay in India for 182 days instead of 60 days as above.

The new amendment has reduced this period of 182 days to 120 days. Please note that this reduced period of 120 days applicable only for persons already abroad who are coming to India for short visits. And there is another beneficial provision also newly introduced, that this will be applicable to those persons who has Indian income is more than Rs. 15 lakhs.

So, if you are an NRI and you have income in India more than Rs. 15 lakhs, then you have to restrict your stay in India to 120 days in a year.

Deemed Resident

Another important addition is the concept of Deemed Resident.

Case 1: If You are an Indian Citizen with Indian income more than Rs 15 lakhs

1. Your income is NOT taxable in any other country by reason of your domicile or residence or any other criteria of similar nature. (This means you are not paying tax in any other country, because you are Non-Resident in that country, as per the rules of that country); OR

2. your stay in India is more than 120 days

Then, you will be deemed as a NOT ORDINARILY RESIDENT. 

Case 2: If You are not an Indian Citizen, but a person of Indian origin (holder of passport of another country)

1. Your Indian income is Rs. 15 lakhs or more; and

2. Your stay in India is more than 120 days but less than 182 days

3. Whether or not you pay tax in any other country

Then, you will be deemed as a NOT ORDINARILY RESIDENT.

In the case of a Not Ordinarily Resident, your income earned outside India from Business controlled from India or profession set up in India will be taxable in India.

TO SUM UP:

For NRI’s – whether you are Indian citizen or not, the first thing you have to check is whether you have Indian income more than Rs. 15 lakhs – if not, then your taxation will be as before – No change at all.

For NRI’s holding Indian Passport, if your Indian income is more than Rs. 15 lakhs, then you have to ensure two things:

1. that you restrict your stay in India to less than 120 days.

2. that you pay tax for your whole income, in your country of residence. (But this is not applicable to residents of those countries like UAE where there is no income tax)

For an NRI holding a foreign passport, you have to make sure that your stay in India in a year is less than 120 days.

And, if you do not comply with any of the above conditions, your income earned outside India from a business controlled from India or a profession set up in India alone will be taxable in India and not all your foreign income.

If you have already paid tax on such income in any other country, you are eligible for a tax rebate as per the Double Taxation Avoidance Agreement between India and the other country.

(Author is a Cochin based Chartered Accountant)

Disclaimer: The Article is based on the Relevant Provisions and as per the information existing at the time of the preparation. In no event the author will be liable for any direct and indirect result from this Article. This is only a knowledge sharing initiative.