Residential status and Tax incidence in India for F.Y 2020-21
This year we got many emails with questions on residential status and their taxability in India. this is often thanks to the very fact that due to current pandemic situation, many of us who went on the off shore projects weren't ready to come thanks to suspension of flights while many NRIs who were working abroad got an choice to work from home and hence they came back to India to remain with their family.
All this shuffle resulted in change in their residential status for Indian taxation purposes. Also, there was an Amendment in Finance Act, 2020 which also brought few changes in provisions of residential status which added to the confusion.
Let me attempt to explain residential status in order that you'll determine your tax incidence correctly.
I have divided this text in 3 parts:
1. Residential status – Resident Indian which may further be divided between Resident and Ordinarily Resident (ROR) and Resident but Not Ordinarily Resident (RNOR). If you're not a resident as per the definition of resident Indian then you'll be considered as Nonresident (NR). First determine what's your residential status.
2. Tax incidence supported Residential status- Once residential status is decided then you'll check whether your only Indian income is taxable or your foreign income is additionally taxable in India. For ROR, their global income is taxable while for NR only their Indian income is taxable. For RNOR, their Indian income and only that foreign income is taxable which is out of business controlled from India/Profession found out in India is taxable.
3. FAQs – Few questions with answers which are commonly asked to us during this fiscal year
Please note, i'm talking about only individuals during this article. It means we aren't discussing residential status of company, partnership firm etc.
As per the Income-tax Act 1961, a private is claimed to be Resident of India, if he satisfies either of the subsequent conditions:
(i) Stay in India is a minimum of 182 days during the previous year; or
(ii) Stay in India is a minimum of 60 days during the previous year and a minimum of three hundred and sixty five days during 4 preceding the previous year.
>The relaxation is provided:
An Indian citizen or an individual of Indian Origin (PIO) who, leaves India for employment or person being outside India and comes on a visit to India during the previous year, he will qualify as a resident of India as long as he stays in India for 182 days or more rather than 60 days as mentioned in point(ii) above.
If an individual satisfies none of the above basic conditions, he are going to be considered as Non resident .
If an individual is resident then he shall check whether he's Resident and Ordinarily Resident (ROR) or Resident but not ordinarily resident (RNOR).
Resident and Ordinarily Resident(ROR) –
An individual is claimed to be ROR, if he satisfies the subsequent two conditions:
(i) Resident in India in a minimum of 2 out of 10 previous years immediately preceding the relevant previous year; and
(ii) Stay in India is 730 days or more during 7 years immediately preceding the relevant previous year.
Resident but Not Ordinarily Resident (RNOR)
If indivdual is resident but doesn’t satisfy both additional conditions quoted above then he are going to be RNOR.
Two additions/exceptions to the above rule are inserted through an Amendment in Finance Act, 2020:
If a private satisfies any of the below two set of conditions, he will still be considered as RNOR:
1. If he satisfies following all four conditions:
(i) he's an Indian citizen or person of Indian Origin
(ii) His total income, aside from the income from foreign sources, exceeds Rs 15 lakhs during the previous year.
(iii) he's not susceptible to tax in the other country or territory by reason of his domicile or residence or the other criteria of comparable nature.
2. If he satisfies following all four conditions:
(i) he's an Indian citizen or person of Indian Origin
(ii) His total income, aside from the income from foreign sources, exceeds Rs 15 lakhs during the previous year.
(iii) He involves Indian on a visit during previous year
(iv) His stay in India is 120 days or more but but 182 days.
Tax incidence based on Residential status
Indian IncomeTaxable in IndiaTaxable in IndiaTaxable in India
Foreign incomeTaxable in IndiaOnly two types of Foreign income is taxable in India:
Business income from the business controlled wholly or partly from India
Professional income from the profession set up in India
Please make a note: Amendment through Finance Act,2020 regarding deemed residency and RNOR will affect only those individuals who have two sorts of foreign income i.e Business income from business controlled from India and Professional income from profession found out in India.
Q.1. i'm an Indian citizen and employed out of India. thanks to pandemic, I got an choice to work from home so I came back to India.
Ans: (i) My stay in India are going to be quite 182 days during F.Y 2020-21. i'm getting salary in my foreign checking account and that i am paying taxes in Foreign country. Am I susceptible to pay tax in India?
Ans: Yes, you'll be considered as a resident Indian for F.Y 2020-21. Then you've got to see further whether you're ROR or RNOR supported number of days stayed in India for preceding years.
(ii) My stay in India are going to be quite 182 days during F.Y 2020-21. I left India in F.Y 2017-18 for the aim of employment, before that i used to be resident Indian only. i'm getting salary in my foreign checking account and that i am paying taxes in Foreign country. Am I susceptible to pay tax in India?
Ans: you'll be considered as a ROR and your Global income will taxable in India. you'll claim foreign decrease or relief of taxes paid outside India supported tax treaties in both countries.
(iii) My stay in India are going to be quite 182 days during F.Y 2020-21. Before that I came to India for 3 weeks per annum since F.Y 2010-11. i'm getting salary in my foreign checking account and that i am paying taxes in Foreign country. Am I susceptible to pay tax in India?
Ans: you'll be considered as a RNOR. Your Indian income which foreign income are going to be taxable which is out of business controlled from India or profession found out in India.
(iv) My stay in India are going to be quite 182 days during F.Y 2020-21. My status is ROR in India. i'm getting salary in my foreign checking account but i'm not paying any tax in foreign company as there's no tax therein country?
Ans: Then you've got to pay tax in India
(v) My stay in India is quite 60 days but but 120 days in relevant FY and stay in India in preceding 4 years is quite three hundred and sixty five days . I even have no intention to travel back.
Ans: you'll be considered as a resident Indian for F.Y 2020-21. Then you've got to see further whether you're ROR or RNOR supported number of days stayed in India in preceding years.
(vi) My stay in India is quite 60 days but but 120 days and stay in India in preceding 4 years is quite three hundred and sixty five days . i'm on a visit to India and can return soon.
Ans: you'll be considered as nonresident. Only income earned and received in India are going to be taxable.
(vii) My stay in India is quite 120 days but but 182 days and stay in India in preceding 4 years is quite three hundred and sixty five days . I even have come to India on a visit and my Indian income is quite INR 15 lakh.
Ans: you'll be considered as a RNOR. Your Indian income which foreign income which is out of business found out in India or profession found out in India are going to be taxable in India.
(viii) My stay in India is quite 120 days but but 182 days and stay in India in preceding 4 years is quite three hundred and sixty five days . I even have come to India on a visit and my Indian income is a smaller amount than INR 15 lakh.
Ans: you'll be considered as a Nonresident Indian. Only income earned or received in India are going to be taxable.
Q.2 i'm a far off citizen. My stay in India is quite 60 days but but 120 days and stay in India in preceding 4 years is quite three hundred and sixty five days . i'm on a visit to India and can return soon.
Ans: you'll be considered as a resident Indian for F.Y 2020-21. Then you've got to see further whether you're ROR or RNOR supported number of days stayed in India for preceding years.
Q.3 i'm a citizen of India living in UAE. i'm a lawyer and have knowledgeable firm found out in India. I get consultancy fees in UAE also . I even have not visited India in F.Y 2020-21. I even have Income in India which is quite INR 15 Lakh.
Ans: you'll be considered as a RNOR and your all Indian income and income out of this consultancy service in UAE are going to be taxable in India.
Q.4 i'm a citizen of India living in USA. i'm a lawyer and have knowledgeable firm found out in India. i buy consultancy fees in USA. During my visit to India, I stayed in India for quite 120 days in F.Y 2020-21. I even have Income in India out of my savings and investments in India which is quite INR 15 Lakh.
Ans: you'll be considered as a RNOR and your all Indian income and income out of this consultancy service in USA are going to be taxable in India.
Disclaimer: Being an NRI, you'll not be in-tuned of Indian rules and regulations. you'll be getting different views and it'd sound confusing to you. during this article, i attempted to elucidate the method in layman language just to offer you a rough idea of the method . Please note, facts and figures of every case are different and that we advise you to require professional advice to understand tax implications in your case. this text is simply to form you understand very basics of the method during a simple way.
Please do let me know if you continue to have any questions associated with above. you'll write to me at [email protected] or call/whatsapp me at +91 9910075924.
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