Non-resident guide

The residential status under Income Tax plays a vital role for considering taxation of certain incomes. It has no nexus with citizenship of India.

The residential status of an assessee is determined on the basis of tenure of his stay in India during the Financial Year. There are 3 types of Residential status for an Individual as explained below.

A] Resident:- Person shall be treated as ‘Resident’, if he satisfies any of the following basic conditions:-

Basic conditions-

1) If a person is in India for at least 182 days during the Financial Year   OR

2) If a person is in India for at least 60 days during the Financial Year and for at least 365 days during the last 4 Financial Years.

Resident Individuals are further sub-divided into following 2 categories :

a] Ordinary Resident:- Person shall be treated as ‘Ordinary Resident’, if he satisfies both the additional conditions.

Additional conditions-

1) If a person is resident of India for any 2 out of last 10 Financial Years    AND

2) If a person is in India for at least 730 days during the last 7 Financial Years.

1. b) Not Ordinary Resident:- If any of the additional conditions specified above are not satisfied then that person is treated as ‘Not Ordinary Resident’ for that Financial Year.

B] Non-Resident:- If none of the basic conditions are satisfied then person is treated as ‘Non-Resident’ for that Financial Year.

Taxability of Income in India as per Residential Status-

• What if Person is going abroad for Job or as a crew member of a ship?

If a person is leaving India due to his employment or as a crew member of Indian ship during a current financial year, then he shall be treated as Resident only if-

He was in India at least for 182 days during a current financial year and also he was in India atleast for 365 days during last four financial years.

• Eg. Mr. Prakash got a job in Spain. He left India for the very first time on 1st July, 2017. He was in Spain till March end. Find out the residential status of Mr. Prakash for a financial year 2017-18?
• Solution:- Since Mr. Prakash left India for the very first time, he was in India atleast for 365 days during last four financial years. However during the current financial year 2017-18, he was in India only upto 1st July i.e. for 92 days.
• As the condition states he should be at least for 180 days during 2017-18.
• Mr. Prakash is treated as Non- resident for a financial year 2017-18.

• Taxation of Residents-

In case of residents, income earned anywhere in the world is taxable in India. That is, income earned abroad shall be aggregated with income earned in India. However, relief of taxes paid in foreign countries shall be available to avoid double taxation of same income.

• Taxation of Non-residents-

In case of non-residents, only the income which is earned or receivable in India is taxable in India.

While the foreign incomes are not taxable in India.

Eg. Mr. Ravi is living in Netherlands since 4 years. He provided the following details of his assets and incomes for the year 2017-18:

• He received interest from FDs, kept with Bank of India Delhi, of Rs. 32,000/-;
• He had let his residential house property located in Amritsar for which he is getting a monthly rental of Rs. 50,000/-.
• He received salary of Rs. 18,00,000/- from his employer in Netherlands;
• He sold his ancestral land in Gurgaon. Long term capital gain from this transaction comes to Rs. 12,00,000/-;
• He received taxable dividends of shares listed in Netherlands of Rs. 25,000/-;

Compute taxable income of Mr. Ravi for financial year 2017-18:

• Mr. Ravi is in Netherlands since 4 years, hence he is non-resident for the purpose of Income Tax. Incomes which are earned or accrued in India shall only be taxable in India.
• Income earned in India are- Income from house property in Amritsar Rs. 6,00,000/- (Rs. 50,000*12); Long term capital gain on sale of land in Gurgaon Rs. 12,00,000/-; Interest received from FDs Rs. 32,000/-
• Hence, his Gross Total Income in India for financial year 2017-18 comes to Rs. 18,32,000/-
• Foreign incomes received i.e. salary and dividends are not taxable in India.

• How to compute double taxation relief for residents?

It might happen that taxpayer is required to go abroad for any job assignment during any part of the year, in this case, he would receive salary in India as well as salary from that foreign country. Tax is deducted from both salaries in both countries. Since income received anywhere in the world is taxable in India in the case of residents, relief U/s. 90 of Income Tax Act could be claimed on the taxes paid on foreign income.

• Steps to compute double taxation relief:

1. Compute Global Income i.e. aggregate of Indian income and Foreign income;
2. Compute tax on such global income as per the slab rates applicable;
3. Compute average rate of tax (i.e. Global income divided by amount of tax);
4. Compute an amount by multiplying Foreign income with such average rate of tax;
5. Amount of relief shall be lower of taxes paid in foreign country minus amount as calculated above.

• Eg.- Mr. Sameer, a resident, earned income in india Rs. 3,00,000/-. He also earned income from foreign country Rs. 1,00,000 (Tax paid in foreign country Rs. 10,000).
• How much tax relief Mr. Sameer could claim and how much tax he shall be required to pay?

• Steps:

1. Global income is Rs. 4,00,000/- (Rs.3,00,000+ Rs.1,00,000);
2. Tax on global income Rs. 15,000/-;
3. Average rate of tax Rs. 3.75% (15000/400000*100);
4. Tax required to be paid Rs. 3,750/- (Rs.1,00,000*3.75/100);
5. Tax paid in foreign country is Rs. 10,000/-

Double Tax Relief shall be lower of 4) and 5) i.e. Rs. 3,750/-

Mr. Sameer is required to pay Rs. 11,250/- (Rs.15,000 minus Rs.3,750/-)

• Services by myITreturn for NRIs-