Disclaimer: Information provided is for general knowledge only and should not be deemed to be professional advice. For professional advice kindly consult a professional accountant, immigration advisor or the Indian consulate. Rules and regulations do change from time to time. Please note that in case of any variation between what has been stated on this website and the relevant Act, Rules, Regulations, Policy Statements etc. the latter shall prevail. © Copyright 2006 Nriinformation.com
NRI
Information by Virendar Chand
NRI Information for OCIs - PIOs on PAN Cards, OCI, Visas, Property, Immigration, Customs Duties & more
next previous

NRI taxation - How Residency can make NRI subject pay tax in India

NRIs and PIO are liable to pay taxes in India, depending on their residency status and the source of income. Persons of Indian Origin, who return to India for permanent settlement, should be aware that at some point of time, their foreign income may also become taxable in India. In India, citizenship is not the only factor used to decide a person's tax liability. Residential status in India is important, for accessing tax liability of a person. However, some types of income, such as rental income may attract tax, regardless of your residential status in India. The income tax Act, 1961, is the governing authority for taxation in India. There are three types of residential status classifications that are considered, for tax purposes. 

Types of residential status categories for tax purposes

1. Resident and Ordinarily Resident (ROR). 2. Non Resident (NR) 3. Resident and Ordinarily Resident (RNOR) also referred as (NOR) Regardless of which countries citizenship a person holds, they would fall into one of the three categories of residency.

Conditions that make NRIs resident for tax purposes

You can be deemed to be a resident of India for taxation purposes if during a financial year, which is from 1st April to 31st March, if any one of the following conditions is satisfied: 1. You are present in India for 182 days or more in the year; or 2. You are present in India for 60 days or more (182 days or more for NRIs)  And within the four previous years, you have been in India for a total of 365 days or more.  Note: The stay in India need not be continuous. If you satisfy any of the above conditions, you are considered a resident in India (ROR) for tax purposes.

Tax liability of 'Resident-Ordinarily Resident' (ROR)

Those who come under the ROR category are required to pay tax in India on their worldwide income, wherever accrued or received. NRIs however, can avoid paying taxes on their global income if they qualify for NOR status. To qualify for 'Not Ordinarily Resident' (NOR) for a tax year, either of the following conditions must be satisfied: 1. You have been non-resident in India for 9 of the previous 10 years; or 2. Your presence in India during the previous 7 years has been less than 730 days. If any one of the above conditions is satisfied, you are 'Not Ordinarily Resident' in India. In this case you only pay tax on your Indian income and your foreign income is exempt from tax in India. On the other hand if you neither of the above conditions are satisfied, then you are considered an ordinary resident for taxation purposes. In this case, your foreign income is also taxable in India.

Tax liability of 'Not Ordinarily Resident' (NOR)

An NOR is required to pay tax on taxable Indian income.  Kindly note that NOR and RNOR represent the same categories. Foreign income is exempt from Indian taxes, unless the foreign income is derived from a business controlled in, or by a profession set up in India.  NOR status category is designed to help non-residents, who return to India for settlement after a long period of time.  NRIs when they relocate to India for permanent settlement, will continue to benefit from the exemption of tax on their foreign income as long as they have NOR status.  NOR status normally lasts two years, however, by adjusting the dates of their return to India, some non-residents may be able to avail the benefit of NOR status for three financial years. A person will be an NOR if they have been out of India for 9 of last 10 years, or if they have spent less than 729 days in India, in the last 7 years. Only one of the two conditions needs to be satisfied. Those who have not visited India for 9 years and return to India at the start of a new financial year, may be able to qualify for NOR status for three financial years. The financial year in India is from April 1st to March 31st. As long as a returning non-resident has NOR status, their foreign earnings remain exempt from Indian taxes. When RNOR status expires they would become liable to pay tax on their foreign income in India. Double Taxation Avoidance Agreements should in most cases, protect them to some extent from paying taxes in India, on their foreign income. Example: Mr. Gupta, a person of Indian origin, returns to India from UK after an absence of 9.5 years. He will be deemed to have RNOR status for two years. Any income he earns in UK while living in India for the next two years will not be taxable in India. After two years, Mr. Gupta will be liable to pay tax on his UK income in India. He will however get credit under the double taxation treaty between India and UK and this may help reduce or even eliminate the tax liability in India on his UK income
Dual Taxation of NRIs - Double Tax Avoidance Agreements DTAA  . . .read now
Custom Search
Search Nri Information

NRI taxation - How

Residency can make NRI

subject pay tax in India

NRIs and PIO are liable to pay taxes in India, depending on their residency status and the source of income. Persons of Indian Origin, who return to India for permanent settlement, should be aware that at some point of time, their foreign income may also become taxable in India. In India, citizenship is not the only factor used to decide a person's tax liability. Residential status in India is important, for accessing tax liability of a person. However, some types of income, such as rental income may attract tax, regardless of your residential status in India. The income tax Act, 1961, is the governing authority for taxation in India. There are three types of residential status classifications that are considered, for tax purposes. 

Types of residential status

categories for tax purposes

1. Resident and Ordinarily Resident (ROR). 2. Non Resident (NR) 3. Resident and Ordinarily Resident (RNOR) also referred as (NOR) Regardless of which countries citizenship a person holds, they would fall into one of the three categories of residency.

Conditions that make NRIs resident

for tax purposes

You can be deemed to be a resident of India for taxation purposes if during a financial year, which is from 1st April to 31st March, if any one of the following conditions is satisfied: 1. You are present in India for 182 days or more in the year; or 2. You are present in India for 60 days or more (182 days or more for NRIs)  And within the four previous years, you have been in India for a total of 365 days or more.  Note: The stay in India need not be continuous. If you satisfy any of the above conditions, you are considered a resident in India (ROR) for tax purposes.

Tax liability of 'Resident-Ordinarily

Resident' (ROR)

Those who come under the ROR category are required to pay tax in India on their worldwide income, wherever accrued or received. NRIs however, can avoid paying taxes on their global income if they qualify for NOR status. To qualify for 'Not Ordinarily Resident' (NOR) for a tax year, either of the following conditions must be satisfied: 1. You have been non-resident in India for 9 of the previous 10 years; or 2. Your presence in India during the previous 7 years has been less than 730 days. If any one of the above conditions is satisfied, you are 'Not Ordinarily Resident' in India. In this case you only pay tax on your Indian income and your foreign income is exempt from tax in India. On the other hand if you neither of the above conditions are satisfied, then you are considered an ordinary resident for taxation purposes. In this case, your foreign income is also taxable in India.

Tax liability of 'Not Ordinarily

Resident' (NOR)

An NOR is required to pay tax on taxable Indian income.  Kindly note that NOR and RNOR represent the same categories. Foreign income is exempt from Indian taxes, unless the foreign income is derived from a business controlled in, or by a profession set up in India.  NOR status category is designed to help non-residents, who return to India for settlement after a long period of time.  NRIs when they relocate to India for permanent settlement, will continue to benefit from the exemption of tax on their foreign income as long as they have NOR status.  NOR status normally lasts two years, however, by adjusting the dates of their return to India, some non-residents may be able to avail the benefit of NOR status for three financial years. A person will be an NOR if they have been out of India for 9 of last 10 years, or if they have spent less than 729 days in India, in the last 7 years. Only one of the two conditions needs to be satisfied. Those who have not visited India for 9 years and return to India at the start of a new financial year, may be able to qualify for NOR status for three financial years. The financial year in India is from April 1st to March 31st. As long as a returning non-resident has NOR status, their foreign earnings remain exempt from Indian taxes. When RNOR status expires they would become liable to pay tax on their foreign income in India. Double Taxation Avoidance Agreements should in most cases, protect them to some extent from paying taxes in India, on their foreign income. Example: Mr. Gupta, a person of Indian origin, returns to India from UK after an absence of 9.5 years. He will be deemed to have RNOR status for two years. Any income he earns in UK while living in India for the next two years will not be taxable in India. After two years, Mr. Gupta will be liable to pay tax on his UK income in India. He will however get credit under the double taxation treaty between India and UK and this may help reduce or even eliminate the tax liability in India on his UK income Dual Taxation of NRIs - Double Tax Avoidance Agreements DTAA  . . . read now >>
N
RI Information
 Informing  educating and connecting Indians across the globe
next next previous previous
twitter  Follow us on N RI
A Book for NRIs PIO & OCI Information at your fingertips!
Available worldwide from Amazon
Free delivery with Amazon Prime
nri guide v k chand