Taxation Rules for non-residents in India including Foreign Citizens

Incidents of taxation on Income earned by non residents in India depends upon his physical presence in India during last financial year. Whether an income earned by an individual in India or outside India, is taxable in India depending upon his stay in India rather than on his citizenship. Invariably, the person holding foreign citizenship remain under wrong impression that taking up foreign citizenship would help them for obtaining tax benefits. The Income Tax Act 1961 (as amended uptill date “the Act”)does not provide any benefit to an assessee on the basis of  his citizenship. 
 

Under the existing applicable provisions of the Act,  section 6 of the Income Tax Act define the conditions for determining residential status of individual and accordingly, the assessee is classified as Resident , Resident and nor Ordinary Resident (RNOR), and Non Resident (NR) depending upon his physical presence in India during previous financial year and preceding 10years.  Therefore, if an individual fulfils the following conditions he would be classified as resident or otherwise he would qualify either as RNOR /NR. The specified conditions are as under:-

 

a) physical presence in India during the relevant FY is 182 days or more;  or

 

b) Physical presence in India during the relevant FY is 60 days or more and 365 days or more in the preceding four FYs.

Note: The 60 - day condition is extended to 182 days if the individual, being Indian citizen, is leaving India for employment outside India. It is extended to 120 days for an individual, being Indian citizen or person of Indian origin ( PIO ) , who is based outside India and comes on a visit to India , if total income of such person , other than income from foreign sources exceeds Rs. 15 lakh.

Deemed Residency Rule: An individual, being a citizen of India, may have not qualified as resident RNOR under above two conditions. However, he may still deemed as resident in India if his total income, other than income from foreign sources, exceeds 15 lakh during the relevant FY in India and  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.

It is needless to say residential status has to be determined fresh for each financial year obviously, as the residential status under Indian Income Tax Act depends upon the physical presence of a person in India during last financial year.

Individual classified as Non Resident is liable to pay Income Tax + applicable surcharge and CESS on the following incomes:-

i . i ncome received or deemed to be received by individual himself or on his behalf in India.

 

ii .  income accruing or arising in India and deemed to be accrue arise in India;

Further different rate of withholding tax in the case of non resident has been prescribed under Income Tax Act on various income being arised in India to non resident such as long term capital gain on sale of self acquired or inherited property in India. However, at the same time, there are provisions in the Act for obtaining certificates from the department for lower deduction of withholding tax.