Is my Income Earned Abroad is Taxable?

Introduction :

We all know that tax constitutes a major portion of government revenue. Tax revenue includes both direct and indirect tax collection. but this collection not only comes from Indian citizens but also NRI. NRI taxation under the Indian Income Tax Act, of 1961 applies to those earning income outside the home country. The income tax rules and perks allowed to them are drastically different from those applicable to resident Indians.

An NRI’s income taxes in India will depend upon his Residential Status for the year.

Non Resident Indian (sec 115(c)(e)

“non-resident Indian” means an individual being a citizen of India or a person of Indian origin who is not a “resident”.

Person of Indian Origin

A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided India

Types of Residential Status which a person can have

i. Resident and ordinarily resident in India

ii. Resident but not ordinarily resident in India

iii. Non-Resident

Determination of Residential status

The resident status shall be determined in 2 steps first we will check whether he is a resident and then whether he ordinarily resides in India or not.

Step1. The Income Tax Act 1961 provides 2 basic conditions under section 6(1) which are as follows

• the person should reside in India for at least 182 days in the previous year.
•  the person resides at least 60 or more days in the previous year and 365 days in the preceding 4 years.

The assessee should comply with at least one condition to become a resident of India. But there are certain exceptions to the 2nd condition which are as follows

• A person going abroad for employment
• Indian citizen being a crew member of an Indian ship leaving India
• person of Indian origin whose total income from India excluding any foreign source is up to Rs. 15lakhs.

Step 2: The Income Tax Act 1961 provides 2 additional conditions under section 6(6) which are as follows:

•  Resident at least 2 or more Previous Years in the last 10 Previous Years.
• The total stay in India should be 730 days or more in the last 7 Previous Years.

Now the Assessee has to comply with both additional conditions to qualify as an ordinary resident.

Determination of Residential Status of Person of Indian Origin

As stated earlier only the first basic condition shall apply to him. however, in one case, 2nd basic condition shall also be applicable and that is when his total income exceeds Rs.15 lakhs. Yes, in that case, it will be applicable with a slighter modification of 120 days instead of 60 days. Let’s analyze the situation along with additional conditions.

• suppose a person of Indian origin whose stay is less than 120 days in India. He will consider a Non-Resident because he did not comply with basic condition no.1, no other condition shall be checked and the matter closed.
• Suppose a person of Indian Origin has stayed in India for more than 120 days but less than 182 days then we will check further that his total income exceeds Rs. 15 lakhs and he has stayed in India 365 days or more in the last 4 Previous Years. If both of the additional conditions are satisfied then he will be a resident but not ordinarily resident.
• Suppose his stay crosses 182 days in India, in that case, he is a resident we will check the additional conditions mentioned in section 6(6) and if the assessee qualifies for those additional conditions also then he will be a resident and ordinarily resident in India.

Determination of Residential Status of Indian Citizens as Crew Members on India Ship

In the case of a citizen of India and a member of the crew of a ship, the period or periods of stay in India shall, in respect of an eligible voyage shall be computed as follows:

• The number of days of stay in India for such a person shall not include the days – from the start date of the Continuous Discharge Certificate and ending on the end date of this document, as signed off on the Discharge certificate.
• The Continuous Discharge Certificate must contain the details of the port of leaving and arriving both India and outside India.
• The Crew Member shall be considered as a non resident if the stay is less than 182 days in India While calculating this stay of 182 days, the entire period mentioned in the Continuous Discharge Document shall be excluded even though the ship may have been in Indian coastal waters in its journey.