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Foreign Income Taxed On Residential Status

Posted @ July 22, 2012, 5:46 am under (Expat Taxation Services)

Under the Income-Tax Act, 1961, the taxability of an individual is dependent on his residential status, which is determined on the basis of his physical presence (number of days) in India during the relevant financial year.

 
A resident individual is subject to tax on his global income in India subject to the foreign tax credit on taxes paid outside India. As such, income from foreign investments would generally be liable to tax in India. In case of non-residents, such an income is not liable to tax as long as it is not directly received in India.
 
Tax assessees may be resident or non-resident. Residents are further subdivided into two sub-categories - (a) resident and ordinarily resident, and (b) resident but not ordinarily resident. To determine which category you fall into, apply the following tests to the tax year from April 1 to March 31.
 
Resident
 
A Resident is one who falls into either of these two categories:
  1. Is in India for 182 days in the year or more, OR
  2. In the preceding four years was in India for 365 days or more, and in the current tax year is in India for a total of 60 days or more
This applies to citizens of any nationality. However the period of 60 days in the second clause above will be extended to 182 days for those who fall into one of these two categories:
 
  1. an Indian citizen who left India in any year for employment outside India, OR
  2. an Indian citizen or a foreign citizen of Indian origin (NRI), who is outside India, comes on a visit to India
 
Non-Resident
 
A tax assessee is non-resident if he or she is not a Resident as-per the section above.
 
Resident but Not Ordinarily Resident
 
A Resident is "not Ordinarily Resident" if he or she fulfils either of these two conditions:
 
  1. Has been a Non-Resident in India for 9 out of 10 preceding years, OR
  2. During the 7 preceding years been in India for a total of 729 days or less
 

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