Non-Resident Analysis and Taxation

1. The conditions to be called as an Indian RESIDENT or NON RESIDENT are:

An individual is said to be resident in India in any previous year, if he—

(a) is in India in that year for a period 182 days or more or

Or,

(b) Staying in India for 60 days in last financial year AND have stayed for 365 days in preceding four previous years.

NOTE: SIX MONTH WORD IS NOT USED AS PER CLAUSE (a)

NOTE: TWO MONTH WORD IS NOT USED AS PER CLAUSE (b)

For Indian citizen working in abroad or a crew member of Indian Ship then the first condition is applicable as per clause (a) i.e staying in India more than 182 days or more

A PIO or Indian citizen having income less than Rs. 15 lakh other than foreign Income who being outside India comes on a visit to India will be also treated as an resident as per clause (a). i.e 182 days or more would be stayed in INDIA

A PIO or Indian citizen having income exceeds Rs. 15 lakh other than foreign Income who being outside india comes on a visit to India will be also treated as an resident if he stayed 120 days during the previous year as per amendment made in Budget 2020.

PIO are the ones, any of his parents or Grandparents born in undivided India.

Illustrations – to understand the Non – resident situation

2. Scope of Taxation and Income from Abroad

Non-resident is taxed only on income that is received in India or the income that accrues or arises in India during the Financial Year. Income that accrues or arise outside India is not taxable in the hands of Non-resident

3. Period reduced to 120 days against 182 days for Indian citizens coming to visit India as per Union Budget 2020 – w.e.f. FY 2020-21

The below conditions should be complied cumulatively for the individual to be considered as a resident after the amendment:

• Total stay in India during the year should be more than 119 days; and
• total income, other than income from foreign sources, should more than INR 15 lakhs; and
• and the period of stay in India in the immediately preceding 4 years should be 365 days or more
• The impact of the above change in budget will be on such individuals whose period of stay is more than 119 days during the year but less than 182 days having income exceeds 15 lakh. Such individuals will be considered to be “resident but not ordinarily resident”

4. Citizen of India having total income exceeds Rs. 15 Lakh who is deemed to be resident in India under clause (1A) of Section 6. An individual, being a citizen of India, having total income, other than the income from foreign sources*, exceeding Rs. 15 lakh rupees during the year shall be deemed to be resident in India in that year, if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature

• Such deemed residents will be considered to be ‘resident but not ordinarily resident’ under the Act

The impact of the amendment is only on such Indian Citizens, having total income from Indian sources exceeding INR 15 lakhs, and who are not liable to pay tax in any country other than India by reason of his residence or domicile

5. If individual qualifies to be resident of both the countries as per the DTAA, then tie breaker rule to be applied

Tier Breaker Rule

Permanent Home Permanent home means a home arranged and retained for permanent use; notintended for short duration

Personal relations – family and social relations

Economic relations -Place of business, major source of income etc

Habitual abode  Frequency, duration, and regularity of stays that are part of the settled routine of an individual’s life

Nationality Country of which the individual is a national Competent authorities  Both the countries to determine the residential status if residential status cannot be determined by applying the tie breaker rule

Tie breaker rule to be applied in the above order. Importance of tie breaker rule to increase as an individual is more likely to qualify as resident of both countries pursuant to the amendment

Disclaimer: Every care has been taken in the preparation of this article to ensure its accuracy. The views contained in this article are personal and the contents of this document are solely for informational purpose and it does not constitute professional advice that may be required before acting on any matter.