Residential status and Tax incidence in India for F.Y 2020-21

Hi Friends,

This year we got many emails with questions about residential status and their taxability in India. This is due to the fact that because of current pandemic situation, many people who went on the off shore projects were not able to come back due to suspension of flights while many NRIs who were working abroad got an option to work from home and hence they came back to India to stay 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 try to explain residential status so that you can determine your tax incidence correctly.

I have divided this article in 3 parts:

1. Residential status – Resident Indian which can further be divided between Resident and Ordinarily Resident (ROR) and Resident but Not Ordinarily Resident (RNOR). If you are not a resident as per the definition of resident Indian then you will be considered as Nonresident (NR). First determine what is your residential status.

2. Tax incidence based on Residential status- Once residential status is determined then you can check whether your only Indian income is taxable or your foreign income is also 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 set up in India is taxable.

3. FAQs – Few questions with answers which are frequently asked to us during this financial year

Please note, I am talking about only individuals in this article. It means we are not discussing residential status of company, partnership firm etc.

Residential Status

Resident –

As per the Income-tax Act 1961, An individual is said to be Resident of India, if he satisfies either of the following conditions:

(i)    Stay in India is at least 182 days during the previous year; or

(ii)   Stay in India is at least 60 days during the previous year and at least 365 days during 4 preceding the previous year.

>The relaxation is provided:

An Indian citizen or a Person 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 only if he stays in India for 182 days or more instead of 60 days as mentioned in point(ii) above.

Nonresident-

If a person satisfies none of the above basic conditions, he will be considered as Non resident .

If a person is resident then he shall check whether he is Resident and Ordinarily Resident (ROR) or Resident but not ordinarily resident (RNOR).

Resident and Ordinarily Resident(ROR) –

An individual is said to be ROR, if he satisfies the following two conditions:

(i) Resident in India in at least 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 will be RNOR.

Two additions/exceptions to the above rule have been inserted through an Amendment in Finance Act, 2020:

If an individual 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 is an Indian citizen or person of Indian Origin

(ii) His total income, other than the income from foreign sources, exceeds Rs 15 lakhs during the previous year.

(iii) He is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature.

2. If he satisfies following all four conditions:

(i) He is an Indian citizen or person of Indian Origin

(ii) His total income, other than the income from foreign sources, exceeds Rs 15 lakhs during the previous year.

(iii) He comes to Indian on a visit during previous year

(iv) His stay in India is 120 days or more but less than 182 days.

Please make a note: Amendment through Finance Act,2020 regarding deemed residency and  RNOR will affect only those individuals who have two types of foreign income i.e Business income from business controlled from India and Professional income from profession set up in India.

FAQ

Q.1. I am an Indian citizen and employed out of India. Due to pandemic, I got an option to work from home so I came back to India.

Ans: (i) My stay in India will be more than 182 days during F.Y 2020-21. I am getting salary in my foreign bank account and I am paying taxes in Foreign country. Am I liable to pay tax in India?

Ans:   Yes, You will be considered as a resident Indian for F.Y 2020-21. Then you have to check  further whether you are ROR or RNOR based on number of days stayed in India for preceding years.

(ii) My stay in India will be more than 182 days during F.Y 2020-21. I left India in F.Y 2017-18 for the purpose of employment, before that I was resident Indian only. I am getting salary in my foreign bank account and I am paying taxes in Foreign country. Am I liable to pay tax in India?

Ans: You will be considered as a ROR and your Global income will taxable in India. You can claim foreign tax credit or relief of taxes paid outside India based on tax treaties in both countries.

(iii) My stay in India will be more than 182 days during F.Y 2020-21. Before that I came to India for 3 weeks every year since F.Y 2010-11. I am getting salary in my foreign bank account and I am paying taxes in Foreign country. Am I liable to pay tax in India?

Ans: You will be considered as a RNOR. Your Indian income and that foreign income will be taxable which is out of business controlled from India or profession set up in India.

(iv) My stay in India will be more than 182 days during F.Y 2020-21. My status is ROR in India. I am getting salary in my foreign bank account but I am not paying any tax in foreign company as there is no income tax in that country?

Ans: Then you have to pay tax in India

(v) My stay in India is more than 60 days but less than 120 days in relevant FY and stay in India in preceding 4 years is more than 365 days. I have no intention to go back.

Ans: You will be considered as a resident Indian for F.Y 2020-21. Then you have to check further whether you are ROR or RNOR based on number of days stayed in India in preceding years.

(vi) My stay in India is more than 60 days but less than 120 days and stay in India in preceding 4 years is more than 365 days. I am on a visit to India and will go back soon.

Ans: You will be considered as nonresident. Only income earned and received in India will be taxable.

(vii) My stay in India is more than 120 days but less than 182 days and stay in India in preceding 4 years is more than 365 days. I have come to India on a visit and my Indian income is more than INR 15 lakh.

Ans: You will be considered as a RNOR. Your Indian income and that foreign income which is out of business set up in India or profession set up in India will be taxable in India.

(viii) My stay in India is more than 120 days but less than 182 days and stay in India in preceding 4 years is more than 365 days. I have come to India on a visit and my Indian income is less than INR 15 lakh.

Ans: You will be considered as a Nonresident Indian. Only income earned or received in India will be taxable.

Q.2 I am a foreign citizen. My stay in India is more than 60 days but less than 120 days and stay in India in preceding 4 years is more than 365 days. I am on a visit to India and will go back soon.

Ans: You will be considered as a resident Indian for F.Y 2020-21. Then you have to check further whether you are ROR or RNOR based on number of days stayed in India for preceding years.

Q.3  I am a citizen of India living in UAE. I am a lawyer and have a professional firm set up in India. I  get consultancy fees in UAE as well. I have not visited India in F.Y 2020-21. I have Income in India which is more than INR 15 Lakh.

Ans: You will be considered as a RNOR and your all Indian income and income out of this consultancy service in UAE will be taxable in India.

Q.4  I am a citizen of India living in USA. I am a lawyer and have a professional firm set up in India. I get consultancy fees in USA. During my visit to India, I stayed in India for more than 120 days in F.Y 2020-21. I have Income in India out of my savings and investments in India which is more than INR 15 Lakh.

Ans: You will be considered as a RNOR and your all Indian income and income out of this consultancy service in USA will be taxable in India.

Disclaimer: Being an NRI, you may not be in touch of Indian rules and regulations. You may be getting different views and it might sound confusing to you. In this article, I tried to explain the process in layman language just to give you a rough idea of the process. Please note, facts and figures of each case are different and we advise you to take professional advice to know tax implications in your case. This article is just to make you understand very basics of the process in a simple way.

Please do let me know if you still have any questions related to above. You can write to me at ushma@nricaservices.com or call/whatsapp me at +91 9910075924.