The residential status of an individual is the deciding factor for working out income tax for Indian residents working abroad.
Simply put, whether or not an individual’s income is taxable in India will depend on their residential status in India for the financial year in question.
There are different categories that an Indian working abroad might fall under –
| NRI: Non Resident Indian | Generally, an NRI is an Indian citizen that resides in India for less than 182 days during the course of the preceding financial year. |
| RNOR: Resident, Non-Ordinary Resident | Returning NRIs become RNORs when –
· They had been an NRI for 9 of the 10 previous financial years · Lived in India for 729 days or less in last 7 financial years |
| Ordinary Indian Resident | An individual is considered to be a resident of India if they have lived in India for a minimum of –
· 182 days during the financial year, or · 60 days within the present financial year, and at least 365 days in last 4 years. |
In view of the global situation caused by the coronavirus pandemic, there have been certain relaxations included in the Finance Act 2020.
As per the new rules, to determine “residential status” of NRIs, the period of 182 days in a financial year has been replaced with that of 120 days for all NRIs.
However, the reduced period of 120 days for establishing if an individual is to be deemed an NRI is to be applicable only in situations wherein the total income in India of such individuals – during that specific financial year – is above INR 15 lakh.
Visiting NRIs with their taxable income in India below INR 15 lakhs in the financial year will continue to be regarded as NRIs if their stay in India is less than 181 days.
| For an Indian working abroad, their foreign income – that is, income accrued outside India – is not taxable in India. |
If an individual that is an Indian citizen leaves India for employment during a financial year, they will qualify as a resident of India only if their stay in India was for 182 days and more.
For an individual residing and working abroad, the NRI income tax to be paid in India will be as per their residential status for that particular financial year.
| For a Resident Indian, their total global income would be taxable as per the Indian tax laws.
For an NRI, only the income accrued or earned in India will be taxable. |
Income tax for an NRI is to be levied on – salary received by them for services provided in India, revenue from Fixed Deposits, capital gains on transfer of assets that are located in India, rental income from property owned by them in India, and interest on Savings Bank Accounts.
Indians are the largest diaspora to send remittances back home. As per a report by the Work Bank, Indian migrant workers sent home around $79bn in 2018.
Even with 2020 being an unprecedented year, the future does hold much promise for those working abroad. According to the World Bank, “In 2021, the World Bank estimates that remittances to LMICs will recover and rise by 5.6 percent to $470 billion.” By LMICs is implied the low and middle-income countries.
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Income Tax for Indian Residents Working Abroad
Posted on January 6, 2021