Returning from Tax-Free Gulf to India / Reuters
For Indians returning from Dubai or other tax-free or low-tax jurisdictions, the date of relocation can be more than a logistical decision. It can determine how overseas income and investments are taxed in India. The opportunity lies in understanding the transition from non-resident (NR) to Resident but Not Ordinarily Resident (RNOR), and eventually Resident and Ordinarily Resident (ROR).
A NR is taxed in India on income received or deemed to be received in India, and income accruing or deemed to accrue in India. An RNOR is taxed on Indian income and on foreign income derived from a business or profession controlled in India. Other foreign income generally remains outside the Indian tax net. An ROR, however, is taxable on global income, regardless of where it is earned or received.
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Under the general residential-status tests, an individual who spends 182 days or more in India during a tax year becomes resident, subject to the other applicable provisions. However, in case of individuals that are citizens of India, not liable to tax in any other country and total income in India exceeds Rs 15 lakh then such individuals are deemed to be RNOR irrespective of their duration of stay in India. Three decisions deserve particular attention during this transition.
Repatriate money from foreign bank account
Consider a returning professional who has accumulated Rs 3 crore in a Dubai bank account from salary earned during years of overseas employment. Suppose the funds remain in a Dubai deposit earning interest. While the individual is RNOR, interest accruing and received outside India remain outside India’s tax net. However, once the individual becomes ROR, interest accruing on the deposit is taxable in India, even if it continues to be credited to the Dubai account.
