Section 6 of the Income Tax Act prescribes provisions for determination of residential status of an individual. Residential Status is determined by the number of days present in India.
A Chartered Accountant qualified in 1979, Khosla worked overseas with KPMG for 2 years and practiced professionally for a decade before founding MyMoneyMantra 1989. He is a highly regarded figure in the financial products distribution arena and advises several banks on their distribution strategy.NRI taxation is always a contentious matter for the massive number of Indians visiting the mother country for meeting their families, or final re-settlement back in India, or even stuck in India due to Covid-19 situation.
Section 6 of the Income Tax Act prescribes provisions for determination of residential status of an individual. Residential Status is determined by the number of days present in India. Taxability of various sources of income of NRI is governed by the Residential Status of the individual and can be classified into three categories – i) Resident and Ordinarily Resident (ROR); ii) Resident but Not Ordinarily Resident (RNOR); and iii) Non-Resident (NR).
A. Residential Status
If an individual satisfies any of the following two basic conditions he will qualify as a Resident of India:
- He stays in India for 182 days or more during the FY or
- He stays in India 60 days or more during FY and 365 days or more during four years preceding the FY.
If none of the above condition is satisfied, he will be classified as NR.
A Resident qualifying both of the following conditions shall be called ROR for the FY:
- Resident for minimum two FYs out of preceding 10 FYs and
- Present in India for minimum 730 days during preceding 7 FYs
If anyone or both of the above two conditions are not satisfied, then his status is RNOR.
Exception: If an Indian citizen or Person of Indian Origin (PIO) is on a visit to India, and his total Income from Indian Sources during the FY exceeds 15 lakhs, then the 60 days mentioned in (A)(ii) above will be read as 120 days
In other cases, it will be read as 182 days
B. Deemed RNOR:
An Indian Citizen, who is not Resident as per the basic conditions shall deem to be RNOR if
- His total Income from Indian Sources during the FY exceeds 15 lakhs and
- He is not liable to tax in any other country or territory by reason of his domicile or residency or any other criteria of similar nature
C. Residential Status vis-à-vis Taxation:
A person has to pay taxes in India on following Income:
- ROR is taxable for Global Income.
- NR is taxable for income received or accrue or arise in India or deemed received or deemed accrue or arise in India
- RNOR – Income as per para b) plus business controlled from India or profession set up in India
D. Filing of Return:
You are required to file ITR if your taxable Income in India exceeds the threshold limit which is not chargeable to tax i.e. Rs 2.5 lakh. Even your Income is below the threshold limit, you would be required to file ITR if you want to claim refund of excess tax deducted at source or you want to carry forward the losses for set off in future.
E. Declaration of Foreign Assets in ITR:
NRI taxpayer is not required to disclose the details of foreign assets in ITR held at any time during the FY. This disclosure requirement is applicable for Resident taxpayers only.
F. Taxability of interest on various accounts held by NRI
NRE Account: Exempt if account holder is resident outside India under FEMA provisions, else taxable.
NRO Account: Taxable
FCNR Account: Exempt from Income Tax for NR or RNOR.
For a tension-free existence, Tax matters should always be promptly dealt with. Best to seek professional assistance, especially where country-to-country double taxation issues are involved.