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NRI Taxation in India
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:-- Salaries
- 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’. -
Tax Liability for Non Resident Indians (NRIs)/ PIO
A person who is non-resident /PIO is liable to tax on that income only which is earned by him in India. Income is earned in India if -
- It is directly or indirectly received in India; or
- It accrues in India or the law construes it as having accrued in India.
The following are some of the instances when the law construes and income to have accrued in India by NRI/PIO and these income is taxable :-- Income from business arising through any business connection in India
- Income from property if such property is situated in India;
- Income from any asset or source if such asset or source is in India;
- Income from salaries if the services are rendered in India. In such cases salary for rest period or leave period will be regarded as earned in India if it forms part of service contract,.
- Income from salaries payable by the Government to a citizen of India even though the services are rendered outside India;
- Income from dividend paid by an Indian company even if the same is paid outside India;
- Income by way of interest payable by Government or by any other person in certain circumstances ;
- Income by way of Royalty if payable by the Government or by any other person in certain circumstances;
- Income by way of fees for technical services if such fees is payable by the Government or by any other person in certain circumstances.
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Clubbing of Income NRI/PIO
The total income of an NRI/PIO individual also includes certain income of other persons. These are:-
- income of spouse from remuneration derived from the concern in which the individual is substantially interested unless the remuneration is by virtue of the application of technical or professional skill possessed by him or her;
- assets transferred by the individual to the spouse or to any other person for the benefit of the spouse unless the transfer is for adequate consideration or in consideration of an agreement to live apart.
- Income of son's wife from assets transferred by the individual to her or to any other person for her benefit unless the transfer is for adequate consideration.
- Income of his minor child - other than the minor child suffering from disability specified in section 80-U, referred to in para 5.3.9 except when such income arises to the child on account of any manual work done by him or on account of any activity which involves application of any skill, talent or specialised knowledge and experience.
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