Being an Indian citizen but living in foreign, do I need to pay my taxes in India?

Or being a foreign citizen but earning income from India, when am I liable to pay taxes in India?

Non-understanding of correct residential status creates a high buzz for persons residing outside India or the persons visiting foreign for most of the year. They remain confuse whether taxes are to be paid in India and quantum of such taxes, provisions if income is earned in India or outside India etc. As the saying goes in Income Tax:

“An Indian Citizen may not be resident Indian, but A Foreign Citizen may be resident Indian.”

So by today’s blog, we wish to make you understand the concept of residential status and how it affects tax levy.

Residential status constitutes of two main categories – Resident or Non – resident.

1. Who is Resident in India?

Upon fulfilling “ANY ONE” of the following two conditions (known as basic conditions), the person is said to be resident in India for the concerned Financial Year. The conditions are:

(a) If he is in India during the relevant previous year for a period amounting in all or in aggregate to 182 days or more.

OR

(b) If he was in India for a period or periods amounting in all to 365 days or more during the four years preceding the relevant previous year

AND

he was in India for a period or periods amounting in all to 60* days or more in that relevant previous year.

Exceptional case

The condition (b) mentioned above (60 days & 365 days) doesn’t apply in case of

1. An Indian citizen who has left India for the purpose of employment in foreign, or

2. An Indian Citizen or person of Indian origin who comes to visit India.

Thus in these cases, if person stays in India for a period of 182 days or more in the concerned F.Y., he is said to be Resident in India.

2. Who is Non-Resident (NR) in India?

If “NONE” of the above mentioned conditions is fulfilled, then person is to be Non-resident in India.

3. Difference between Ordinarily Resident (OR) and Not-Ordinarily Resident (NOR)

After deciding if a person is resident in India, next comes the question of deciding whether he is an Ordinarily Resident or Not-Ordinarily Resident.

Residential Status

4. Conditions to be fulfilled to become Resident and Ordinarily Resident

After fulfilling one of the above two tests for normal residential status, an individual becomes resident of India. Further to become, an ordinary resident of India an individual has to in addition to above test has to fulfill both the following two conditions:

1. He has been resident of India in at least 2 previous years out of 10 previous years immediately prior to the previous year in question.

AND

2. He has stayed in India for at least 730 days in 7 previous years immediately prior to the previous year in question.

5. Conditions to be fulfilled to become Resident but Not Ordinarily Resident

After fulfilling one of the above two tests for normal residential status, an individual becomes resident of India. Further to become, Resident but NOT ordinary resident (‘RNOR’) an individual has to in addition to above test fulfill ANY the following two conditions:

1. He was a non-resident in India for 9 previous years out of 10 previous years preceding the relevant previous year.

OR

2. He was in India for a period or periods aggregating in all to 729 days or less during seven previous years proceeding the relevant previous year.

6. How income is taxed according to different residential status?

Particulars Levy of Tax (Yes/ No)
Ordinarily Resident Not-Ordinarily Resident Non-Resident
Income received or deemed to be received in India Yes Yes Yes
Income accrued or deemed to be accrued in India Yes Yes Yes
Income accruing outside India Yes No No

Mark a note of these points:

1. Income received outside India, but subsequently remitted to India doesn’t amount to receiving of income in India. 1st receipt is important for consideration;

2. While counting period of stay, continuous stay or stay at a particular location in India doesn’t matter;

3. Person of Indian origin means a person who himself, either of his parents or either of his grandparents (both paternal and maternal) were born in Undivided India.

4. While computing the period of stay in India, both the day of entering in India and the day of leaving India shall be counted in period of stay in India.

7. Practical examples to understand the concept better:

Case 1: Bill Gates, owner of Microsoft comes to India for 100 days every year. What shall be his residential status for A.Y. 2020-21 (F.Y. 2019-20)?

Solution: Bill Gates’s residential status shall be determined in 2 steps:

Step 1: Total stay of Bill Gates in last 4 years preceding 2019-20 (Concerned F.Y.) is 400 days (i.e. 100 * 4) and his stay in F.Y. 2019-20 is 100 days. Therefore, since he has satisfied 2nd condition of the basic conditions, he is a resident in India.

Step 2: His total stay in India in last 7 years preceding F.Y. 2019-20 is 700 days (i.e. 100 * 7), he satisfies the  2nd condition of the additional conditions, hence he is Not-Ordinarily Resident (NOR) in India.

Thus, for AY 2020-21, Bill Gates shall be resident but Not Ordinarily Resident (NOR).

Case 2: Sachin, an Indian citizen, leaves India on 22nd September 2019 for the first time, to work as an employee of a company in America. What shall be his residential status for A.Y. 2020-21 (F.Y. 2019-20)?

Solution:  During the F.Y. 2019-20, Sachin was in India for 175 days i.e. 30 (April) + 31 (May) + 30 (June) + 31 (July) + 31 (August) + 22 (September)  . Since he is leaving India for purpose of employment, hence 2nd condition of basic condition shall not be applicable for him. He doesn’t fulfil the 1st condition of basic conditions also. Hence he shall be Non-Resident in India for F.Y. 2019-20.

If you still find difficulties in determining residential status or have problems related to tax levy in any of the residential status, feel free to reach us. We are working hard so that you can live a tax-tensions-free life.

(Republished with Amendments)

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Company: Content Flavour
Location: Jaipur, Rajasthan, IN
Member Since: 31 Oct 2017 | Total Posts: 18
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6 Comments

  1. J B GOEL says:

    I am US Green card holder (permanent resident) since 27.11.2018. In the financial year 2019-20, I was in India for 5 months i.e. i was in USA for 7 months and shall remain 8 months in USA for the financial year 2020-21. while in USA, I work as substitute teacher in different Govt Schools of a county and is paid for working days (working days 93 days in this year). Pl advise my residential status for 2019-20

    1. CA Sagar Gambhir says:

      You mean to say that in FY 2019-20, You were in India for 5 months, then for employment VISA (work permit VISA), you shifted to USA.. then for FY 2019-20, You are non resident for India

  2. Sukhsagar Singh says:

    hi
    i migrated to USA on(PR) in 16 oct 2018 and returned in Aug 2019, My question-
    I had income as salary from co. in india from Mar-18 to Marc-19 as Promoter Director and also has salary income in Usa from Nov-18 to July-19,How will my income be calculated in india?
    No indian income from Mar-19 to Jan-20
    Pl see i migrated as PERMANENT RESIDENT.

    1. CA Sagar Gambhir says:

      Your Salary Income in India would be taxed in India & for income earned in USA, you need to show that in ITR in india under DTAA.

  3. Shekhar Kandpal says:

    Can you please elaborate on ” Resident but not ordinary Resident”. My uncle is crew member of ship since 15 years and was Non -Resident till last financial year. He has taken the retirement now. Whether the interest received on NRE a/c will be taxable now? If any arrears received in foreign currency during the current financial year will be taxable in India?

  4. Kamalakannan C says:

    Sir, request assistance in following case:
    Self am an Indian National, having Singaporean Permanent resident status working in Singapore.
    Now have returned to India, deputed by Singapore company for last two years.
    Understand that salary is earned for service rendered in India and staying in India, am a resident. But doubts on taxability of CPF contribution by company and self in Singapore in India. Also which country to pay tax etc. Thanks

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