Non-Resident under Income Tax in India
Nowadays, global mobility is quite usual. More Indians live and work in other countries due to employment, expanding businesses, and foreign education. Because of this, people are now paying more attention to what is known as a Non-Resident (NR) for Indian income tax purposes. It is important to know who is considered a non-resident under income tax in India, what income is taxed, and what you need to do to avoid problems with the law.
What does Indian Income Tax mean by ‘Non-Resident’?
Based on a person’s residential status during the financial year, the Income Tax Act, 1961 has separated people into three categories.
- Resident and Ordinarily Resident (ROR)
- Someone who is a resident in the country, but is not ordinarily resident
- Non-Resident (NR)
Basic Conditions for Residency
In India, a person is considered to be a resident in a financial year if they:
- Spends at least 182 days in India throughout the financial year.
- An individual is present in India for more than 60 days in a fiscal year and has lived in India for more than 365 days for four or more years before that fiscal year.
When neither of the mentioned conditions apply, the person is believed to be a Non-Resident.
Exceptions for Indian Citizens and PIOs
- Anyone who is either an employee or a crew member of an Indian ship, leaving India to work, is considered a resident only if they stay for more than 182 days (not 60 days).
- If their source of income in India does not exceed ₹15 lakh, Indian citizens or PIOs can stay in the country for up to 182 days. If you earn more than ₹15 lakh, you have to stay in Australia for at least 60 days.
Taxability of Income for Non-Residents
In India, an individual is taxed based on where their residential status lies.
For Non-Residents:
Any income generated or arising inside India is subject to taxation in India. Global income is not taxable.
Taxable Incomes for NRs:
- Salary earned in India
- Revenue generated from house property in India
- Capital gains on Indian assets
- Interest received from Indian banks or companies
- Dividends received from Indian companies
- Income earned by an individual from working in an Indian business or profession
Exempt Incomes for NRs:
- Zero interest rate is charged on NRE accounts.
- Some income falls under DTAA and, therefore, might be exempt or suffer a lower tax rate.
Special Tax Rates for Non-Residents
Most of the earnings of non-resident individuals are subject to TDS (Tax Deducted at Source). The rates are generally:
- Interest: 20%
- Dividends: 20%
- Royalties: 10% or 15%, depending on the nature
- Capital gains:
- Short-term (on equity): 15%
- Long-term (on equity): 10%
- Other assets: The holder must pay 20% or 30% based on the amount of time they keep the investment
The rates could be revised up or down if the closest DTAA gives a more favorable rate.
DTAA Benefits
Thanks to DTAAs with 90 countries (an agreement signed with countries to avoid double taxation of taxpayers), foreign investors do not have to pay taxes twice on their Indian income. These treaties help in:
- Reducing the tax rate
- Adding the amount of taxes you paid abroad to your US tax return
- Avoiding legal disputes
You need to send the Tax Residency Certificate (TRC) from your home nation, in addition to Form 10F and a self-declaration, to receive DTAA (Double Taxation Avoidance Agreement) benefits.
Filing Income Tax Returns as a Non-Resident
Is Filing Mandatory?
All NRs living abroad are required to complete an Income Tax Return (ITR) in India.
- The amount of income you have is more than the basic exemption (₹2.5 lakh for the current year).
- You can seek a refund of any excess TDS you have paid,
- To claim DTAA benefits
Which ITR Form?
ITR-2: If your income comes from a salary, property, capital gains, or any other source without earning from a business.
ITR-3: If there are business or professional earnings made in India.
Due Date for Filing:
The assessment year ends on 31st July unless prolonged by the government.
Recent Amendments Impacting NRs
1. Deemed Residency Rule (Applicable from FY 2020–21)
Any Indian citizen who earns above ₹15 lakh (not counting foreign income) and who does not have to pay taxes in another country is considered a resident in India. It was created to tackle people without a country of origin who exploit the laws to not paying taxes.
2. TCS on Overseas Remittances
If you want to use the Liberalised Remittance Scheme to send money overseas for education, investment, or travel, it may attract TCS taxes of 5% to 20%, depending on what you are sending and how much. Still, TCS is a special tax, and it must be accounted for on your ITR.
Planning Tips for Non-Residents
- Track your days in India: Be careful not to lose your initial visa status and become a resident without meaning to.
- Utilise NRE/NRO accounts smartly: If you save in an NRE account, you are not required to pay tax; however, if you use an NRO account, you will need to pay tax.
- Claim the benefits offered by a tax treaty to lower the taxes you have to pay.
- Honestly report your Indian money and income on your return.
- Try to avoid being treated as a ‘deemed resident’ because of Indian-sourced income and a lack of citizenship.
Common Mistakes to Avoid
- Supposing that you, the NR, are subject to taxation of global income in India.
- Not providing the TRC when using DTAA benefits.
- Failing to disclose any rental income or interest received on Indian bank accounts.
- Claims for rebates are rejected because people’s residences are not properly tracked.
- Failure to hand in ITR on time results in either getting penalised or forfeiting the right to claim refunds.
Get Started with TaxDunia
Grasping the concept of being a non-resident for tax purposes under Indian laws is vital now that the world is highly connected. Your taxation in India for income depends on whether you are residing in the country or not. At this time of stricter rules, effective tax planning, good accounting, and meeting all your required disclosures will help you avoid legal issues and ensure you feel secure.
