Taxation of Foreign National OR NRIs in India

CA Goutam Jain 

Firstly let me explain the process of determination of taxability of any Foreign National OR NRI via simple diagram-

 Section 5 of Income Tax Act says resident global income ( both earned in India & foreign) is taxable in India however the Non- Resident’s only income which is received in India OR accrues or arises or deemed to accrue or arise in India is taxable.

Now who is Resident and who is Non Resident? Section 6 of Income Tax Act determines residential Status on the basis of No. of days stay during the year in India. Sometimes according to the domestic law of countries an Individual become Resident of two or more countries than tie breaker rule as per DTAA need to apply to determine eventual Resident Country.

Hence once a person determined to be Non-Resident in India as discussed above; his following income will be taxable in India-

(a) Income received or deemed to be received in India or

(b) Income accrues or arises or deemed to accrue or arise to him in India

Now the term income received in India can be taken straight however what is Income accrues or arises or deemed to accrue or arise to him is defined in Section 9 if Income tax Act as follow-

 Briefly now it clear that what income earned by Non Resident is taxable in India however what is tax rate is yet to find out. Income is generally taxed at slab rate in case of Individual and 40% for foreign Company however Income Tax Act specified lower tax rates for income like capital gain etc.

Here it worth to note that double tax avoidance agreements (DTAA) or tax treaty entered with countries overwrite the Income tax Act hence if particular income is taxable in Income tax Act is exempt under DTAA or taxable at lower rate than the same will be followed.

(Author is Partner of G Y & Company -B-101, Purav Heights, Mugbhat Lane , Girgoan , Mumbai-04. Author can be reached at [email protected])

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