The “days rule” for determining the residential status of an individual in India is based on the number of days they have spent in India during a financial year (April 1 to March 31). The rule is defined under the Income Tax Act of India and categorizes individuals into three types of residential status:
- Resident: An individual is considered a resident of India if they have spent:
- 182 days or more in India during the financial year, or
- 60 days or more in India during the financial year and have spent 365 days or more in India during the four preceding financial years.
- Non-Resident: An individual is considered a non-resident if they do not meet the criteria for being a resident as mentioned above.
Resident but Not Ordinarily Resident (RNOR):
An individual is considered an RNOR if they are a resident of India but do not satisfy the conditions to be considered “ordinarily resident.” This status is generally applicable to individuals who are returning to India after a significant period of stay abroad.
It’s important to note that the specific rules and criteria for determining residential status can vary depending on individual circumstances and may be subject to interpretation by tax authorities. Additionally, other factors such as citizenship, intention of stay, and other legal considerations may also influence the determination of residential status for tax purposes. Therefore, individuals are advised to consult with a tax advisor or legal expert for personalized advice regarding their residential status and tax obligations.
Taxation Rules
If you reside and work abroad, the NRI income tax you pay will depend on your residential status for the year. If you fit the Resident Indian criteria, your total global income is taxable under Indian tax laws. But if your status for the year is ‘NRI’, only the income earned or accrued in India is taxable.Individual should have taxable income of more than Rs 2.5 Lakh.
Income included in the threshold limit of Rs 2.5Lakh
- Salary
- Income from Business/Profession
- Rental/Lease Income
- Interest/Dividend income from shares/Mutual Fund/Bank
- Capital gains from sale of shares/Mutual fund/property etc.
Benefits of Filing Tax Returns (Even if NRIs Annual Income is less than Rs. 2.5 Lakh)-
- One can claim TDS Refund.
- Losses if any can be carried forward for future offset.
- Will prove one’s tax status in India.
- One can claim exemptions if any under DTAA#.
So, an NRI can reap the aforesaid benefits, if he/she files the return of income in India even if the total income is below threshold limit.
#DTAA – Double Taxation Avoidance Agreement
Conclusion
Taxation rules in India vary quite significantly for NRIs as compared to those applicable to resident Indians. It is crucial to understand the taxation provisions applicable to NRIs as specified in the Income-tax Act, 1961, to avoid the risk of double taxation when one is earning income in India as well as in other countries. Understanding the tax policies applicable to NRIs helps one determine his/her residential status and avail the tax benefits accordingly. Thus, an NRI must have clarity on each and every aspect of taxation applicable to him/her in India.