Income tax is charged under the Indian Income Tax Act, 1961, It is an annual tax on income levied by the Central Government of india. Tax is charged in respect of the income of the financial year (known as previous year) in the next financial year (known as assessment year) at the rates fixed for such assessment year in the Finance Act passed each year by the Parliament.
The Act categorises the income of a person under different heads and provides for the manner of computation of taxable income of each head. These heads of income are:-
Income from house property,
Profits and gains of business or profession,
Capital gains, and
Income from other sources
NRIs are taxable on income accrued or received in India. Income earned and received outside India such as overseas business income, overseas bank interest incomes, etc. is not taxable in India.
Once income is earned and received outside India, it is not taxable in India if at a later date, the money is sent to India. However any income earned, subsequently, on the amounts brought into India will be subject to tax in India.
If a NRI comes back to India and loses his NRI status, he will not be subject to tax in India on his world-wide income if either of the following two conditions are satisfied:
He has been in India for not more than 729 days during the preceding seven financial years; or
He has qualified as a non-resident for nine out of 10 preceding financial years
A NRI coming back to India after a long stay outside India may be exempt from tax on his worldwide income for the first two years of his stay in India, if any of the above conditions are satisfied. Similarly, if in any particular financial year, his stay in India exceeds 182 days and he loses his NRI status for that year, his income outside India will still not be taxable if any of the above two conditions are satisfied and his tax status will be that of a ‘Not Ordinarily Resident’.