Who is Non resident for Income Tax purposes and what are the implications of becoming Non resident under the tax laws?
Who is a non resident for the purpose of income tax
For levy of income tax on any person in India, his physical presence in India is very important. The residential status of a person may vary from year to year so it is necessary that the status is verified every year for the financial year ending on 31st March. Residential status of a person can normally be determined after the year end based on his physical stay in India. The income tax laws have defined the term “non resident” negatively. So a person is a non resident if he not a resident. So for determining as to who is a resident you have to fulfill any one of the two basic conditions.
Let us understand this with example respect to the financial year ended 31st March 2017. So you would be resident of India for income tax purpose if
- you were physically present in India for 182 days or more during the period 1st April 2016 to 31st March 2017.
- You would be treated as a resident in India if you were physically present in India for 60 days or more during the year ended 31st March 2017 and were physically present in India for 365 days or more during the four year period of 1st April 2012 to 31st March 2016. For the alternative situation you need to satisfy both the conditions simultaneously.
There is some relaxation as to the requirement of being physically present in India for 60 days or more in India in that year in respect of the second condition for three categories of persons where you would be considered to be resident in India only if you were physically in India for 182 days or more during the year ended 31st March 2017:
- An Indian citizen who is a crew members of an Indian ship and who leaves India during that year,
- An Indian Citizen leaving India to take up an employment outside India during that year and
- An Indian citizen or a person of Indian origin for the year during which he visits India.
So in case you do not satisfy any of the above two basic conditions you would straightway become a non resident of the country.
There is one more category of “not ordinary resident” under the tax laws. So once you satisfy any of the two basic conditions, you would still qualify as a not ordinary resident if you to satisfy any of the following two conditions.
- The first condition is that you should be a non resident for nine years out of ten years period ended on 31st March 2016 or
- Alternatively were in India for the seven years ending on 31st March 2016 for not more than 729 days.
What are implications on becoming a non resident?
Under the Indian Tax laws if you are a resident of India all your global income wherever received becomes taxable in India in spite of the fact that such foreign income might have been taxed in the country of receipt as well subject however to provisions of tax credits available on taxes paid on such income and benefits available under double tax avoidance agreement entered into between India and the country.
However for a non resident only the income which is received in India or is accrues for asset held in India or for services rendered in India only become taxable in India. So if your salary is directly credited to your bank account in India while you are working abroad, the same would still become taxable in India even if you are a non resident for income tax purpose based on residence criteria.
Moreover there are certain tax benefits under the income tax laws which are available only to the resident and not available to non resident.
(The author is a CA, CS and CFP. He can be reached at jainbalwant at gmail.com and @jainbalwant)