Day-count key for returning NRIs to avoid tax in India – Money News | The Financial Express

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They should restrict stay to 181 days to keep foreign income out of tax net

Returning from West Asia? How Temporary Stays Can Trigger Global Taxation for NRIs

Non-resident Indians (NRIs) who have come home temporarily due to geopolitical tensions in West Asia must closely track their days of physical presence here. An extended stay can change their residential status and, in turn, the scope of income taxable in India.

India’s Income Tax Act, 1961, classifies NRIs into three residential categories — non-resident (NR), resident but not ordinarily resident (RNOR), and resident and ordinarily resident (ROR) which determines the scope of tax liability in India. Even when an NRI returns home for compelling personal or geopolitical reasons, the law applies strict, objective day-count tests.

Physical presence

If an NRI stays in India for 182 days or more in a financial year, he will be treated as a resident. Even a stay of 60 days or more in the current year combined with 365 days over the previous four years can trigger resident status and their global income becomes taxable in India.

But the story doesn’t end there. A resident who has been tax-resident in India for at least two out of the last 10 years and has stayed 729 days or more here in the last seven years is classified as ROR, making their entire global income taxable in India.

However, if either of these two conditions is not met, the individual qualifies as RNOR, where only Indian-sourced income is taxed, offering meaningful relief on foreign earnings. “This distinction is crucial for individuals who continue foreign employment while working remotely from India, as such days can create Indian salary-sourcing exposure even before full resident taxation applies,” says Sandeep Sehgal, partner-Tax, AKM Global, a tax and consulting firm.

Once an NRI qualifies as ROR, he will have to declare his worldwide income in India. Maneesh Bawa, partner, Nangia Global, says filing an income tax return (ITR) becomes mandatory if income exceeds the basic exemption limit. “Even for NRIs having RNOR status, income linked to work done from India can be taxable. In such cases, filing an ITR in India may be necessary,” he says

Tax treaties

For services performed remotely from India, an NRI may avail relief under the article “Dependent Personal Services” of the applicable Double Tax Avoidance Agreement (DTAA). However, DTAA mandates strict conditions in respect of foreign income, stay period, employer residency status, etc. If fulfilled and supported by necessary documentation, such income may not be taxable in India, and withholding tax exposure in India can be mitigated. If these conditions are not satisfied and the income becomes taxable in India, he may still mitigate double taxation by claiming FTC in the country of residence under the applicable DTAA.