- Date : 21/02/2023
- Read: 3 mins
A look at the latest in NRI taxability in India
Under the Income Tax Act, non-residents must pay tax on the income earned in India. The Non-resident status of a person is determined by the rules defined by the Act as well as by the Foreign Exchange Management Act (FEMA).
Also Read: Real estate deals by non-residents under the tax net
Residency and taxation
Among the latest introductions in the NRI taxation rules are the deemed residency rule and the 120 days rule. These two rules have been effective from the financial year 2020-21.
The residential status of a person is determined through the physical presence of the person in India during a particular financial year and the 10 financial years preceding it. Thus, the residential status of a person is determined for every new year. Two conditions define an individual’s residency. If you fulfil any one of these two conditions, you are a resident of India. Otherwise, you will be deemed to be a non-resident.
The conditions are,
(1) Individual was physically present in India during the relevant financial year for 182 days or more.
(2) Physically present in India during the relevant financial year for 60 days or more and 365 or more days in the four years preceding the financial year.
Deemed residency - The deemed residency rule says that an individual citizen of India, who has earned a total income of over Rs 15 lakhs in India and is not taxable in any other country or territory due to his domicile, residence or any other reason will be a deemed resident in India. The Rs 15 lakh includes income other than income from foreign sources.
120 days rule - The 60-day rule in the above condition gets extended to 182 days if the Indian citizen happens to leave India for employment overseas. On the other hand, it gets extended to 120 days for an individual Indian citizen or person of Indian origin (PIO) who is based out of India and has visited the country, and whose total income, excluding income from foreign sources, is more than Rs 15 lakhs. If this total income is less than Rs 15 lakhs, then the 60 days rule is extended to 182 days.
Also Read: Financial products that NRIs can invest in India
Taxable non-resident income
The income of a non-resident is taxable only on certain specific conditions. The income earned by the non-resident in India is taxable if,
- It is an income that is accruing or arising in India;
- It is an income that is deemed to accrue or arise in India; or
- It is an income received or deemed to be received in India.
Budget 2023 Impact
Non-residents have seen a positive amendment in the withholding tax rules in the union budget 2023. The surcharge rate reduction in the budget has lowered the maximum effective tax rate for high-net worth individuals and non-residents. The new maximum rate has come down from 42.74% to 39% if the non-resident or high-income individual opts for the new tax regime.
Also Read: Breakdown of tax reliefs received by non-resident Indians in budget 2022
These are the recent rules and changes that have a bearing on how tax is calculated for non-resident Indians.
Under the Income Tax Act, non-residents must pay tax on the income earned in India. The Non-resident status of a person is determined by the rules defined by the Act as well as by the Foreign Exchange Management Act (FEMA).
Also Read: Real estate deals by non-residents under the tax net
Residency and taxation
Among the latest introductions in the NRI taxation rules are the deemed residency rule and the 120 days rule. These two rules have been effective from the financial year 2020-21.
The residential status of a person is determined through the physical presence of the person in India during a particular financial year and the 10 financial years preceding it. Thus, the residential status of a person is determined for every new year. Two conditions define an individual’s residency. If you fulfil any one of these two conditions, you are a resident of India. Otherwise, you will be deemed to be a non-resident.
The conditions are,
(1) Individual was physically present in India during the relevant financial year for 182 days or more.
(2) Physically present in India during the relevant financial year for 60 days or more and 365 or more days in the four years preceding the financial year.
Deemed residency - The deemed residency rule says that an individual citizen of India, who has earned a total income of over Rs 15 lakhs in India and is not taxable in any other country or territory due to his domicile, residence or any other reason will be a deemed resident in India. The Rs 15 lakh includes income other than income from foreign sources.
120 days rule - The 60-day rule in the above condition gets extended to 182 days if the Indian citizen happens to leave India for employment overseas. On the other hand, it gets extended to 120 days for an individual Indian citizen or person of Indian origin (PIO) who is based out of India and has visited the country, and whose total income, excluding income from foreign sources, is more than Rs 15 lakhs. If this total income is less than Rs 15 lakhs, then the 60 days rule is extended to 182 days.
Also Read: Financial products that NRIs can invest in India
Taxable non-resident income
The income of a non-resident is taxable only on certain specific conditions. The income earned by the non-resident in India is taxable if,
- It is an income that is accruing or arising in India;
- It is an income that is deemed to accrue or arise in India; or
- It is an income received or deemed to be received in India.
Budget 2023 Impact
Non-residents have seen a positive amendment in the withholding tax rules in the union budget 2023. The surcharge rate reduction in the budget has lowered the maximum effective tax rate for high-net worth individuals and non-residents. The new maximum rate has come down from 42.74% to 39% if the non-resident or high-income individual opts for the new tax regime.
Also Read: Breakdown of tax reliefs received by non-resident Indians in budget 2022
These are the recent rules and changes that have a bearing on how tax is calculated for non-resident Indians.
