Question: I am an Indian citizen based out of a certain foreign country. However, I do stay for a good number of days in India as well as well as generate income from Indian investment sources. What would be my tax resident status in India for the purpose of paying taxes?

Answer given by Dr. Suresh Surana, Founder, RSM India: Tax residency status is important as it determines the eligibility of any person to pay tax in any country/ jurisdiction as well as the nature/quantum of income which would be subjected to tax in such a country.

If an individual satisfies any one of the following basic conditions, he is treated as a Resident of India for that financial year:

i. First Basic Condition – He is in India for a period of 182 days or more in that financial year OR

ii. Second Basic Condition – He is in India for 60 days or more during that financial year and has been in India for 365 days or more during last 4 years.

Also Read: How to maximize tax benefits for senior citizens in India

* In case the income derived from Indian sources exceeds Rs 15 lakh

With effect from 1 April 2020, in case of an Indian citizen or a person of Indian origin, being outside India and comes to India on a visit and whose total Indian taxable income (other than income from foreign sources) exceeds Rs 15 lakh, then for determining his/her residential status, 60 days limit shall be replaced with 120 days in the second basic condition i.e. under the second basic condition he will be considered as resident if he stays in India during the relevant financial year for 120 days or more and 365 days or more in the preceding 4 financial years. However, even if such a person (having Indian taxable income exceeding Rs. 15 lakhs) stays in India during the relevant financial year for 120 days or more but less than 182 days, he shall be treated as Resident but Not Ordinarily Resident (RNOR).

The residential status shall be further determined as per section 6(1A) of the Income Tax Act, 1961 (hereinafter referred to as ‘the IT Act) which provides that if an Individual being an Indian Citizen having total Indian Income (i.e. income other than income from foreign sources) exceeding Rs 15 lakhs, shall be deemed to be resident of India in any financial year, if 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.

Liable to tax means that there is an income-tax liability on such a person under the law of that country for the time being in force and shall include a person who has subsequently been exempted from such liability under the law of that country. Such a person shall be treated as Resident but Not Ordinarily Resident (RNOR), subject to the specified conditions.

We are first required to check the basic conditions as mentioned above in order to determine the residential status of the individual. In case where the basic condition mentioned above is not fulfilled, we need to determine the residential status in accordance with section 6(1A) of the IT Act. In case neither of these conditions are satisfied, such individual taxpayer would be considered as a Non-Resident (NR) in India.

Note: Income from foreign sources means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India) and which is not deemed to accrue or arise in India.

* In case the income derived from Indian sources is upto Rs 15 lakh

In case where income derived from Indian sources is upto Rs. 15 lakh, such an individual shall be treated as resident in India only if his/her total period of stay in India exceeds 182 days or more in the relevant financial year (i.e. 2nd basic condition would not be applicable in such case). Wherein such stay in India is less than 182 days and provided the India sourced income derived by such individual is upto Rs 15 lakh, they would be a “Non-Resident” for a financial year.

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