NRI Taxation
 This chapter has been divided in to four segments.
 In the first segment the rule of residential status has
been discussed i.e. how residential status
(residential, non resident) is judged.
 In the second segment it is discussed that how
taxability of India income & foreign income differs
based on residential status.
 In the third segment, difference between Indian
income & foreign income has been discussed.
 In the fourth segment ADT agreement has been
discussed.
Understanding ‘Residential Status’
 Residential status means a status of a ‘person’ whether
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the person is Indian resident or non resident for that
particular previous year for tax purpose. As it is clear
that it is decided for every person & residential status
may be different for different previous year.
Residential status is something different from
citizenship.
Citizenship rights are governed by constitution of India,
whereas residential status is decided as per rule of
income tax act’ 1961.
Citizenship doesn’t vary every year whereas residential
status is checked every year as it may vary every year.
An Indian citizen may be non resident in India or a
foreign citizen can be Indian resident as it is being
decided by place & time of residence in India.
Understanding ‘Residential Status’
individual
Resident
Ordinary resident
Non-resident
Non-ordinary
resident
Understanding ‘Residential Status’
 An individual can be resident or non resident
depending upon the basic condition. If an individual
satisfies at least one of the two basic condition then
the said individual is said to be resident in India
otherwise Non resident. If an individual is said to be
resident as per the basic condition then it is further
checked whether he/she is ordinary resident or non
ordinary resident based on additional condition. If the
said individual satisfies both the additional condition
then he/she is said to be ordinary resident other wise
non ordinary resident.
Understanding ‘Residential Status’
 Basic conditions:
 Basic condition no. 1: If an individual resides in India for at least 182
days during
the relevant previous year.
 Basic condition no. 2: If an individual resides in India for at least 60
days during the relevant previous year & 365 days during the 4 years
immediately preceding the relevant previous year.
 Exception to the basic conditions:
 Exception no. 1: From 1990-91 onwards if an Indian citizen leaves India
during the relevant previous year for the purpose of employment
outside India or as member of the crew of Indian ship, then in the basic
condition 2, 60 days will be replaced by 182 days
 Exception no.2: From 1995-96 onwards if an Indian citizen or person of
Indian origin who comes on visit to India, then in the basic condition no
2, 60days will be replaced by 182 days. (Person of Indian origin means
if the assessee or either of his parents or either of his grand parents is
born in undivided India.)
Understanding ‘Residential Status’
 Additional Conditions:
 Additional condition.1: If assessee has been
‘resident’ in India ( as per basic conditions) for at
least 2 years out of 10 previous years immediately
preceding the relevant previous year.
 Additional condition 2: If an assessee has been in
India for 730 days or more in 7 years immediately
preceding the relevant previous year.
 Indian extends up to territorial waters. Territorial
waters of India mean water extending up to 12
nautical miles in to the sea from the coast line. So as
soon as in individual crosses into the Indian territorial
waters it is said that he/she is India.
Taxability of Indian income & foreign income
based on the residential status
 Income
Ordy resident
Non ord
resident
Non resident
Taxable
Taxable
Taxable
Not Taxable
Non-Taxable
Not Taxable
 Indian Income
 Taxable
 Foreign Income
If business or profession
setup in India or
controlled from India
Taxable
 Otherwise
Taxable
Definition of Indian Income & foreign
income
 Indian Income:
An income either accrues or arises in
India
Or received in India
Or both accrue & received in India.
Or Income either deemed to accrue or arise India
Or deemed to received in India
Or both deemed to accrue or arise in India or
received in India.
Definition of Indian Income & foreign
income
 Income deemed to accrue or arise in India.
 Income from a business connection in India
 Transaction through a branch in India.
 Transaction through an agent in India.
 Transaction through any subsidiary company in India.
 Transaction through the BPO.
 Income from any property, asset, source of income in
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India.
Income from transfer of capital asset in India.
Income from salary if services rendered in India
Dividend paid by Indian company
Any interest, royalty, technical fee paid by
government of India.
Definition of Indian Income & foreign
income
 Income deemed to receive in India.
 Annual accretion to the balance of provident
fund in India.
 Contribution by the central govt. in the
pension fund of employee
 Recovery against any deduction earlier
allowed from the income.
 Recovery from the bad debts.
ADT agreement
 ADT means ‘avoidance of double taxation’.
 If a person is resident in India then the
income earned in India or outside India is
taxable in India. Moreover the same income
may be taxable in the country where it is
earned. If that is so the income earned
outside India then it is taxed twice (in India &
outside India)
ADT agreement
 To avoid the double taxation govt of India has
ADT agreement with many countries. So
relief is given as per the agreement between
two countries.
 If there is no ADT agreement between two
countries then benefit is given arbitrarily by
govt. of India.
ADT agreement
 If there is no ADT agreement then relief is
given by the following formula
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Step1-Calculate the average rate of tax
outside India.
Step-2 Add Indian income with foreign income
and calculate tax & rate of tax on such
income.
Relief is given on the foreign income at rate
lower of the step-1 & step-2
Thank you