NRI Taxation India: Residential status | FAQs
Residential status under the Income Tax Act determines an individual's tax liability in India. It is primarily based on the individual's physical presence in India during a financial year (April 1 to March 31).
Table of Contents
- What are the distinct categories of residential status outlined within the Income Tax Act for individuals in India?
- Who is considered as Deemed Resident in India?
- When is an individual considered as a RNOR in India under the Act?
- When is an individual considered as a ROR in India under the Act?
- Should the date of arrival in India and the date of departure from India to a foreign country be taken into account when calculating the total number of days spent in India?
What are the distinct categories of residential status outlined within the Income Tax Act for individuals in India?
Answer: Under the Income Tax Act in India, an individual's residential status is determined based on the individual's physical presence in India during a particular financial year (April 1 to March 31). There are three main classes of residential status for individuals:
Resident: An individual is considered a resident in India if any of the following conditions are met:
- The individual is in India for 182 days or more during the financial year.
- If the individual is in India for 60 days or more during the financial year and has been in India for 365 days or more during the preceding four financial years.
Non-Resident: An individual is considered a non-resident if they do not meet any of the above conditions for being a resident.
Resident but Not Ordinarily Resident (RNOR): An individual is classified as RNOR if they meet one of the following conditions:
- The individual has been a non-resident in India for nine out of the ten previous financial years preceding that year.
- The individual has been in India for a total of 729 days or less during the seven previous financial years preceding that year.
These classifications of residential status determine the individual's tax liabilities in India, including the scope of income that is taxable in the country.
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Who is considered as Deemed Resident in India?
Answer: In India, an individual can be considered a deemed resident if they meet the following criteria:
- The individual is a citizen of India, or
- The individual is of Indian origin and visits India during the relevant financial year (April 1 to March 31) for a total period of 182 days or more.
This provision was introduced in the Finance Act, 2020, to bring high net worth individuals within the tax ambit who may otherwise avoid taxation by not meeting the residency criteria under the traditional tests.
When is an individual considered as a RNOR in India under the Act?
Answer: An individual is considered a Resident but Not Ordinarily Resident (RNOR) in India under the Income Tax Act if they meet any of the following conditions:
The individual has been a non-resident in India for nine out of the ten previous financial years preceding the relevant financial year.
The individual has been in India for a total of 729 days or less during the seven previous financial years preceding the relevant financial year.
RNOR status is important for determining the tax liabilities of individuals who may have recently returned to India or have intermittent presence in the country.
CA Mitesh and Associates is India's leading NRI Taxation Firm with special focus on NRI Property matters and NRI Investments in India. Check out details of our NRI Tax Services.
When is an individual considered as a ROR in India under the Act?
Answer: An individual is considered a Resident and Ordinarily Resident (ROR) in India under the Income Tax Act if any of the following conditions are met:
The individual has been in India for 182 days or more during the relevant financial year (April 1 to March 31), regardless of their citizenship or origin.
If the individual has been in India for 60 days or more during the relevant financial year and for 365 days or more during the four financial years immediately preceding the relevant financial year.
If either of these conditions is satisfied, the individual is classified as a Resident and Ordinarily Resident (ROR) in India for tax purposes.
What does the term "income from foreign sources" signify?
Answer: The term "income from foreign sources" refers to any earnings, profits, or gains derived from activities or assets located outside the individual's home country. This can include income from employment, business, investments, royalties, dividends, or any other sources generated from foreign countries or assets held abroad.
CA Mitesh and Associates is India's leading NRI Taxation Firm with special focus on NRI Property matters and NRI Investments in India. Check out details of our NRI Tax Services.
Should the date of arrival in India and the date of departure from India to a foreign country be taken into account when calculating the total number of days spent in India?
Answer: Yes, the date of arrival in India and the date of departure from India to a foreign country must be included when calculating the number of days of stay in India for determining an individual's residential status for tax purposes. Both the arrival and departure days are counted as part of the total days spent in India.
Residential status affects the taxation of an individual's income in India. Residents are taxed on their global income, whereas non-residents are taxed only on income earned or received in India or deemed to be received in India. RNORs enjoy certain tax benefits similar to non-residents for a transitional period. It's crucial for individuals to determine their residential status accurately as it determines their tax obligations in India.
An Indian citizen is leaving India for taking-up employment overseas. What is the best time for his/her departure from India?
Answer: An Indian citizen planning to leave India for employment abroad must carefully consider the timing of their departure to determine their residential status for tax purposes. If their stay in India during the relevant financial year (FY) is 182 days or more, they will be considered a resident in India. To maintain their status as a Non-Resident (NR) for that FY, it is advisable for them to depart India on or before September 28. This recommendation assumes that they do not return to India for any personal or official visits until the end of the FY.
Failing to depart by this date would result in qualifying as a Resident and Ordinarily Resident (ROR) under taxation rules, thereby subjecting them to taxation on their global income as well as obligations to report foreign assets in India. Therefore, careful planning of departure and subsequent visits is essential to align with tax provisions and optimize their tax position.
CA Mitesh and Associates is India's leading NRI Taxation Firm with special focus on NRI Property matters and NRI Investments in India. Check out details of our NRI Tax Services.
If an Indian citizen settled overseas wishes to return to India for good, what is the best time for her/him to do so?
Answer: If the individual was a Non-Resident in the preceding financial years, it is advisable for them to plan their return to India on or after February 1 (or February 2 in the case of a leap year). However, if their total stay in India during the four preceding financial years does not surpass 365 days, they may consider returning after October 2 (or October 3 in a leap year). In either scenario, the individual will maintain their status as a Non-Resident for the current financial year.
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