The details of what the taxes for an NRI are and how they should be dealt with, fall under the category of NRI taxation.
Non-resident Indians need to pay appropriate taxes as and when they fall under the jurisdiction of the Income Tax Act of 1961. Income Tax is levied on all sources of income other than agricultural income. Income taxes are applicable on all the resident citizens who earn their income in India. If you are an NRI (Non Residential Indian), you are only liable to pay taxes for the income that is earned in India.
Residential status of an individual: [Section 6(1)]
Condition 1: You have been in India for 182 days or more in a previous year.
Condition 2: You have been in India for at least 365 days in the 4 years preceding the previous years and at least 60 days in the previous year.
*If you do not satisfy both conditions, you are an NRI.
Note: Both days are inclusive come in and go out of India.
However, second condition is not applicable in the following cases:
- An Indian citizen who lives India during the previous year for the purpose of employment outside India or as a member of the crew of an Indian ship
- An Indian citizen or a person of Indian origin who, being outside India comes on a visit to India during the previous year.
Mr. Ram, an Indian citizen, left India on 22.09.2016 for the first time to work as an officer of a company in Germany. The residential status of Ram for the assessment year 2017-18 and the conditions to be fulfilled for the same under the Income-tax Act, 1961 are as below:
- In the case of Indian citizens leaving India for employment, the period of stay during the previous year must be 182 days instead of 60 days given in (ii)
- During the previous year 2016-17, Mr. Ram, an Indian citizen, was in India for 175 days only (i.e. 30+31+30+31+31+22 days). Thereafter, he left India for employment purposes. Since he does not satisfy the minimum criteria of 182 days, he is a non-resident for the A.Y. 2017-18.
Resident and Ordinarily Resident: [Section 6(6)]
Condition: You are a Resident (i.e. satisfied sec.6 (1)) in India for at least 2 out of the 10 years immediately preceding the previous year.
You have been in India for 730 days or more in the last 7 years immediately proceeding the previous years.
Residential status for companies: [Section 6(3)]
All Indian companies are always Resident of India.
For other than Indian companies: They called Resident of India, only if its P.O.E.M. is in India
*P.O.E.M.: “Place of Effective Management”.
Residential status for firm and HUF: [Section 6 (2) / (4)]
A firm or HUF is said to be Resident of India if, its place of effective management is whole is in India or partly in India or partly outside India.
HUF may be Resident and ordinarily resident, if its karta satisfied section 6(1) for Resident of India and both the condition of section 6(6) for R&OR.
Charge of tax ability for non-resident:
As per section 5(2), a non-resident is chargeable to tax in India only in respect of following incomes:
- Income received or deemed to be received in India; and
- Income accruing or arising or deemed to accrue or arise in India.
INCIDENCE OF TAX
[SCOPE OF TAX ABILITY IN INDIA]
|Sr. no.||Particulars||R & OR||R& NOR||NON RESIDENT|
|1||Income accrue or arise in India||YES||YES||YES|
|2||Income deemed to be accrue or arise in India||YES||YES||YES|
|3||Income Received or deemed to be received in India||YES||YES||YES|
|4||Income [other than above]from business controlled from India||YES||YES||NO|
|5||Any other Income||YES||NO||NO|
Note: Income deemed to be accrued or arise in India:
All income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India.