In India, the tax liability of any individual is based on his residential status. There are three types of residential status under Income Tax Act 1961,
Non Resident Indian (NRI)
The Income Tax Act 1961 does not expressly define an Non Resident Indian (NRI), but provides a detailed criteria of who is considered a resident of India. Therefore, anyone who does not meet that criteria is considered an NRI.
Under Section 6(1) of the Income Tax Act an Individual is said to be resident in India if he fulfill any of the following conditions:
In case a person is an Indian citizen working abroad or a crew member on an Indian ship, only the first condition is applicable to the person. This means that a person becomes a resident when he spends at least 182 days in India.
Finance Act Amendment 2020
The Finance Act 2020 has amended the residency provisions for income tax purposes to include Indian Citizen/Person of Indian Origin, who comes to visit India shall now be considered as RNOR subject to the following conditions:
Before this amendment, such individuals were classified as non-residents. However, now the individual’s residential status may be classified as RNOR, which will lead to loss of DTAA benefits, increased scope of total income for taxability, loss of various exemptions allowed, etc.
It is to be further noted that in the above amendment, an individual staying for more than 182 days shall be classified as a resident irrespective of the level of income in the previous year.
Tax liability for NR
The tax burden of NRIs in India is limited to the income they make in the country. They are not required to pay any tax in India on their international earnings. They are only taxed on the income earned in India.
In case when the same income is taxed both overseas and India, the NRI may look for relief under the Double Taxation Avoidance Agreement (DTAA) if India has signed with the other nation to avoid paying taxes twice.
|Income Tax Heads||Taxable Income|
|Income from Salary||Income from salary will be taxable for an NRI only if such income is earned by the services rendered in India. Thus, a person may be an NRI, but if his salary is paid towards services provided in India, it shall be taxed in India immaterial of the place where the income is received.
Whereas in case the income received is not from the services rendered in India, the income shall not be taxable in India.
Income from house property
|Income from a property that is situated in India is taxable in the hands of an NRI.The calculation of such income shall be in the same manner as applicable to a resident.|
Income from other sources
|Interest income from fixed deposits and savings accounts held in Indian bank accounts is taxable in India. Interest on Non Resident External Account (NRE) and FOREIGN CURRENCY (NON RESIDENT) ACCOUNTS (BANKS) SCHEME (FCNR) accounts is tax-free. Interest on NRO accounts is fully taxable.|
Income from business and profession
|Any income earned by an NRI from a business controlled or set up in India is taxable.|
Income from capital gains
|Any capital gain on transfer of capital asset which is situated in India shall be taxable in India. Capital gains on investments in Indian shares, securities shall also be taxable in India.|