“Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income of the previous year of

every person”

-    Section 4(1) Of the Income Tax Act, 1961

It is quite evident that every person is subject to taxation in India regardless of their status is subject to income tax, however the extent to which they are taxable varies.

In order for income to be taxed in India, said income should arise or accrue or deemed to be so.

This brings us to the question: what about income that does not accrue or arise in India? and more importantly how do we tax the ones who receive such income, the Non- Residents of India (NRIs)?

Before getting into how the taxation applies to NRI, we need to understand how to classify an Individual as NRI.

It is crucial to comprehend just how an NRI becomes obligated to pay taxes in India. According to the provisions of FEMA (Foreign Exchange Management Act), a citizen of Indian origin may only be referred to as an NRI if they have maintained a relative duration of absence from India for a predetermined number of days while living Overseas.

According to Section 6(1), a person will be a resident of India in the previous assessment year, if:

1. He/she is in India for at least 182 days in that year, OR
2. He/she was in India for at least 60 days during that year and 365 days during the previous 4 assessment years.

Note: The period of ‘60 days’ is to be replaced by ‘182 days’ if:

1. An Indian citizen leaves India in any year for the purpose of employment, or as a member of a crew of an Indian merchant ship, OR
2. when an Indian citizen or a person of Indian Origin (PIO) who is abroad comes to visit India, the period of ‘60 days’ is to be replaced by 182 days.

If either of the above conditions satisfy, he/she is Resident. Else, is Non-Resident.

The new finance Act has vide Section 6(1A) inserted that Non Resident whose Taxable income exceeds Rs. 15 Lakhs is deemed to be a resident if:

1. He/she is in India for at least 120 days in that year, OR
2. He/she was in India for at least 365 days during the previous 4 assessment years.

Conclusion for Residential Status:

1. If you are an Ordinary Indian Resident, then your global income is taxable in India.
2. If you are a not ordinary resident, then all income received, deemed to be received, accrued / arised, deemed to be accrued / arised in india along with Income accruing outside India from a business controlled from India or from a profession set up in India,
3. If you are a Non-Resident Indian (NRI), then only the income generated in India is taxable.

Taxation Regulations for NRI:

Tax rules in India for NRIs vary by a significant degree when compared to the rules that are applicable for resident Indians. Some of the important points to note are:

1. Income tax slabs for NRIs are based only on the income barring any gender, age or other specification.
2. In case of TDS, all incomes of NRIs are charged irrespective of any threshold value.
3. No nominal deductions are applicable on investment income except under specific or rather certified situations.
4. Tax filing isn't normally required for NRIs if the income is subject to clauses under Section 115G of the Income Tax Act.

Is my income earned abroad taxable?

An NRI’s income taxes in India will depend upon his residential status for the year as per the income tax rules mentioned above.

If your status is ‘resident’, your global income is taxable in India. If your status is ‘NRI,’ your income earned or accrued in India is taxable in India.

1. Salary received in India or salary for service provided in India, income from a house property situated in India, capital gains on transfer of asset situated in India, income from fixed deposits or interest on a savings bank account are all examples of income earned or accrued in India. These incomes are taxable for an NRI.
2. Income which is earned outside India is not taxable in India.
3. Interest earned on an NRE account and FCNR account is tax-free. Interest on NRO accounts is taxable in the hands of an NRI.

Let’s break into each head of incomes and discuss how the tax applicability is for non-Residents:

1.Income from Salary

Tax applicability for ‘Income from Salary’ for NRI is based on the following situations:

1. If the Salary is received in India – If you’ve received any salary in India directly into an Indian Account or somebody else has received on your behalf in India, then such salary income would be taxable in India.

1. If the Salary is earned in India – The term ‘earned in India’ refers to services rendered in India. Thus, if you are an NRI and your salary earned is for the services rendered in India, then such salary income would be taxable in India.

If either of the above situation satisfies, the taxation will be at the ‘Slab Rate’.

2.Income from House Property

Any income from a property which is situated in India either rented or lying vacant is taxable income for NRI. The calculation for such Income is same as that for a resident.

Note: Even if the income is transferred directly to NRE account or to an account outside India, still the income received from property situated in India is Taxable.

3.Income from Other Sources

Indian sourced Income in the form of Interest on Fixed Deposit and Savings bank is Taxable in India. However, the following NRI Accounts has nature on Tax:

1. Interest received in NRE and FCNR Account – Tax Free.
2. Interest received in NRO Account – Taxable.

4.Income from Capital Gains

Any capital gain arising on transfer of capital asset in India, Investment in India for Shares and Securities is Taxable. Classification of Capital Gains into Long-Term and Short-Term is same as that for a resident. Like residents, even NRIs are allowed to claim exemptions under section 54, 54EC and 54F on long-term capital gains from sale of House Property.

5.Income from Business and Profession

If an NRI has a business or a profession situated in India and profit gained from it is taxable same as that for a Resident.

TDS for NRI:

If you are an NRI with an Income arising in India, you are required to understand the stipulations of Section 195 of Income Tax Act, 1961.

FAQ: Why TDS for NRI?

Deducting Tax at the time of payment eliminates chances of Tax Evasion. Section 195 put forward guidelines for relevant Tax deductions. It also defines the applicable tax rates on financial transactions of NRIs perform in India.

There are 4 Rates of TDS specially for an NRI receiving an Income:

Note: Education cess and surcharge also apply over and above the TDS Rates under Section 195.

Rebate u/s 87A

The rebate under section 87A is not allowed to a Non-Resident.

Benefits of Basic Exemption Limit

As a Non-Resident, you still will get the benefit of basic exemption limit.

However, if the income is only from Short-Term or Long-Term Capital Gains, then the benefit of basic exemption limit is not available in respect of such gains.

Hence, we discussed all the Income Heads, Deductions, Tax Slabs and TDS Rates applicable for Non-Residents. But as of now the main question arise is, “Do I need to pay Tax Abroad and in India for the Same Income Head?”

In order to answer the question, let us understand the Agreement for Double Tax Avoidance.

Double Taxation Avoidance Agreement (DTAA)

The Double Tax Avoidance Agreement (DTAA) is a tax treaty signed between two or more countries to help taxpayers avoid paying double taxes on the same income. A DTAA becomes applicable in cases where an individual is a resident of one nation but earns income in another.

The intent behind a Double Tax Avoidance Agreement is to make a country appear as an attractive investment destination by providing relief on dual taxation. This form of relief is provided by exempting income earned in a foreign country from tax in the resident nation or offering credit to the extent taxes have been paid abroad.

Say, for instance, if an individual is asked to go abroad on deputation and receives payments during the period away from home, the income earned may be subject to tax in both the countries.

The individual can claim relief at the time of filing tax return for that financial year, provided there is an applicable DTAA. If the person is an NRI with investments in India, there may be DTAA provisions that apply to income from such investments.

“Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income of the previous year of

every person”

-    Section 4(1) Of the Income Tax Act, 1961

It is quite evident that every person is subject to taxation in India regardless of their status is subject to income tax, however the extent to which they are taxable varies.

In order for income to be taxed in India, said income should arise or accrue or deemed to be so.

This brings us to the question: what about income that does not accrue or arise in India? and more importantly how do we tax the ones who receive such income, the Non- Residents of India (NRIs)?

Before getting into how the taxation applies to NRI, we need to understand how to classify an Individual as NRI.

It is crucial to comprehend just how an NRI becomes obligated to pay taxes in India. According to the provisions of FEMA (Foreign Exchange Management Act), a citizen of Indian origin may only be referred to as an NRI if they have maintained a relative duration of absence from India for a predetermined number of days while living Overseas.

According to Section 6(1), a person will be a resident of India in the previous assessment year, if:

1. He/she is in India for at least 182 days in that year, OR
2. He/she was in India for at least 60 days during that year and 365 days during the previous 4 assessment years.

Note: The period of ‘60 days’ is to be replaced by ‘182 days’ if:

1. An Indian citizen leaves India in any year for the purpose of employment, or as a member of a crew of an Indian merchant ship, OR
2. when an Indian citizen or a person of Indian Origin (PIO) who is abroad comes to visit India, the period of ‘60 days’ is to be replaced by 182 days.

If either of the above conditions satisfy, he/she is Resident. Else, is Non-Resident.

The new finance Act has vide Section 6(1A) inserted that Non Resident whose Taxable income exceeds Rs. 15 Lakhs is deemed to be a resident if:

1. He/she is in India for at least 120 days in that year, OR
2. He/she was in India for at least 365 days during the previous 4 assessment years.

Conclusion for Residential Status:

1. If you are an Ordinary Indian Resident, then your global income is taxable in India.
2. If you are a not ordinary resident, then all income received, deemed to be received, accrued / arised, deemed to be accrued / arised in india along with Income accruing outside India from a business controlled from India or from a profession set up in India,
3. If you are a Non-Resident Indian (NRI), then only the income generated in India is taxable.

Taxation Regulations for NRI:

Tax rules in India for NRIs vary by a significant degree when compared to the rules that are applicable for resident Indians. Some of the important points to note are:

1. Income tax slabs for NRIs are based only on the income barring any gender, age or other specification.
2. In case of TDS, all incomes of NRIs are charged irrespective of any threshold value.
3. No nominal deductions are applicable on investment income except under specific or rather certified situations.
4. Tax filing isn't normally required for NRIs if the income is subject to clauses under Section 115G of the Income Tax Act.

Is my income earned abroad taxable?

An NRI’s income taxes in India will depend upon his residential status for the year as per the income tax rules mentioned above.

If your status is ‘resident’, your global income is taxable in India. If your status is ‘NRI,’ your income earned or accrued in India is taxable in India.

1. Salary received in India or salary for service provided in India, income from a house property situated in India, capital gains on transfer of asset situated in India, income from fixed deposits or interest on a savings bank account are all examples of income earned or accrued in India. These incomes are taxable for an NRI.
2. Income which is earned outside India is not taxable in India.
3. Interest earned on an NRE account and FCNR account is tax-free. Interest on NRO accounts is taxable in the hands of an NRI.

Let’s break into each head of incomes and discuss how the tax applicability is for non-Residents:

1.Income from Salary

Tax applicability for ‘Income from Salary’ for NRI is based on the following situations:

1. If the Salary is received in India – If you’ve received any salary in India directly into an Indian Account or somebody else has received on your behalf in India, then such salary income would be taxable in India.

1. If the Salary is earned in India – The term ‘earned in India’ refers to services rendered in India. Thus, if you are an NRI and your salary earned is for the services rendered in India, then such salary income would be taxable in India.

If either of the above situation satisfies, the taxation will be at the ‘Slab Rate’.

2.Income from House Property

Any income from a property which is situated in India either rented or lying vacant is taxable income for NRI. The calculation for such Income is same as that for a resident.

Note: Even if the income is transferred directly to NRE account or to an account outside India, still the income received from property situated in India is Taxable.

3.Income from Other Sources

Indian sourced Income in the form of Interest on Fixed Deposit and Savings bank is Taxable in India. However, the following NRI Accounts has nature on Tax:

1. Interest received in NRE and FCNR Account – Tax Free.
2. Interest received in NRO Account – Taxable.

4.Income from Capital Gains

Any capital gain arising on transfer of capital asset in India, Investment in India for Shares and Securities is Taxable. Classification of Capital Gains into Long-Term and Short-Term is same as that for a resident. Like residents, even NRIs are allowed to claim exemptions under section 54, 54EC and 54F on long-term capital gains from sale of House Property.

5.Income from Business and Profession

If an NRI has a business or a profession situated in India and profit gained from it is taxable same as that for a Resident.

TDS for NRI:

If you are an NRI with an Income arising in India, you are required to understand the stipulations of Section 195 of Income Tax Act, 1961.

FAQ: Why TDS for NRI?

Deducting Tax at the time of payment eliminates chances of Tax Evasion. Section 195 put forward guidelines for relevant Tax deductions. It also defines the applicable tax rates on financial transactions of NRIs perform in India.

There are 4 Rates of TDS specially for an NRI receiving an Income:

Note: Education cess and surcharge also apply over and above the TDS Rates under Section 195.

Rebate u/s 87A

The rebate under section 87A is not allowed to a Non-Resident.

Benefits of Basic Exemption Limit

As a Non-Resident, you still will get the benefit of basic exemption limit.

However, if the income is only from Short-Term or Long-Term Capital Gains, then the benefit of basic exemption limit is not available in respect of such gains.

Hence, we discussed all the Income Heads, Deductions, Tax Slabs and TDS Rates applicable for Non-Residents. But as of now the main question arise is, “Do I need to pay Tax Abroad and in India for the Same Income Head?”

In order to answer the question, let us understand the Agreement for Double Tax Avoidance.

Double Taxation Avoidance Agreement (DTAA)

The Double Tax Avoidance Agreement (DTAA) is a tax treaty signed between two or more countries to help taxpayers avoid paying double taxes on the same income. A DTAA becomes applicable in cases where an individual is a resident of one nation but earns income in another.

The intent behind a Double Tax Avoidance Agreement is to make a country appear as an attractive investment destination by providing relief on dual taxation. This form of relief is provided by exempting income earned in a foreign country from tax in the resident nation or offering credit to the extent taxes have been paid abroad.

Say, for instance, if an individual is asked to go abroad on deputation and receives payments during the period away from home, the income earned may be subject to tax in both the countries.

The individual can claim relief at the time of filing tax return for that financial year, provided there is an applicable DTAA. If the person is an NRI with investments in India, there may be DTAA provisions that apply to income from such investments.