29/11/2016

EYHereishowNRIincomeistaxedinIndiaEYIndia

PublishedEditorial

HereishowNRIincomeistaxedinIndia
By
SurabhiMarwah
EY
WithIndiarapidlyprogressingtowardsaglobalizederawithstrongereconomictiesbeingforgedwithother
developing/developedmarkets,thereareaplethoraofemployeemovementsacrosstheglobe.Such,
employees,beingsenttoworkinothercountries,straddletwotaxjurisdictionsandmayhaveahostof
reportingandotherobligationsinadditiontoadherencetothetaxlawsintwocountries.
NonResidentIndians(commonlyreferredtoasNRIs)arecitizensofIndiaorPersonsofIndianoriginwho
qualifyasNonResidentsinIndiafortherelevanttaxyear.AsperIndiantaxlaws,aNonResidentisdefined
asanindividualwhowaspresentinIndiaforlessthan60daysduringtherelevanttaxyear,andincaseof
IndiancitizenswholeaveIndia(duringtheyear)forthepurposeofemploymentoutsideIndia,suchlimitto
breakIndianresidencyisreplacedby182days.Additionally,whenacitizenofIndiaorapersonofIndian
originwhoisoutsideIndiavisitsIndiainanyyear,hewouldberegardedasNonResidentifhistotalstayis
lessthan182daysintherelevanttaxyear.
InordertoanalyzethetaxbenefitsavailabletoNRIsundertheIndiandomestictaxlawsandunderthedouble
taxavoidanceagreements(DTAAs),letusbreaksuchindividualsinto2categories:
ForNRemployeescomingtoworkinIndia:AlthoughIndiafollowsasourcerulebasisoftaxation,i.e.totax
allincomeswhichaccrue/arisefromanemploymentexercisedinIndia,therearecertainreliefsavailableunder
thedomestictaxlaws(commonlyknownasthe90dayrule)andtheDTAA(commonlyknownasthe182day
rule)whichallowexemptionofsuchemploymentincomeearnedinIndiaforindividualsqualifyingas
Residentsoftheirhomecountry,subjecttosatisfactionofcertainotherspecifiedconditionssuchasphysical
presenceinIndia,crosschargetoanIndianentityetc.PersonalincomereceivedoutsideIndiaforsuch
individuals(rent,interestetc)isnottaxableinIndia.
ForNRemployeesleavingIndiatoworkoutsideIndia:Thecompensationincomereceivedbynonresident
IndiansinabankaccountoverseasisnotsubjecttotaxinIndia.However,salaryreceivedinIndiaistaxable
undertheIndiandomestictaxlaws(alongwithbeingtaxedinthesourcecountryasmostcountriesfollowthe
sourceruleoftaxation)i.e.onareceiptbasis.However,insuchacase,anexemptionmayagainbeclaimed
undertheDependentPersonalServices(DPS)clauseoftheDTAAenteredbetweenIndiaandtherelevant
hostcountry,iftheindividualqualifiesasaresidentinthehostcountry.
Apartfromtheabove,foreigntaxcreditsmayalsobeclaimedbyNRIsoverseasinrespectofincomestaxed
bothinthehomeaswellashostjurisdictions,inaccordancewiththerulesprescribedunderthedomestictax
lawsandDTAA.ItispertinenttonotethatincaseanNRIintendstoavailanyofthetaxbenefitsprovided
underaDTAA,aTaxResidencyCertificateneedstobeappliedforandobtainedinrespectofeachofthetax
year(s)forwhichsuchbenefitisclaimed.Suchcertificateisrequiredtobeissuedbythecountrywherethe
individualbreaksresidency.
Animportantpointtonoteisthat,Indiansourcedincomeintheformofinterestondeposits,rentalincomeon
propertyinIndiaetc.shallhowevercontinuetobetaxedinIndia(asperdomestictaxlaws)andthe
exemptionsavailableunderthedomestictaxlaws(exceptanyspecificallynotapplicabletoNRIs)suchas
Section80Cwithrespecttocertaininvestments,paymentofprincipalonhousingloanetc.,maycontinuedto
beavailedbythem.Further,anonresidentindividual,whoseincomeduringthetaxyearcomprisesonlyof

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29/11/2016

EYHereishowNRIincomeistaxedinIndiaEYIndia

investmentincomeorincomebywayoflongtermcapitalgainsorboth,doesnotnecessarilyneedtofilean
incometaxreturninIndia.Also,areturnisnotrequiredifthenecessarytaxhasalreadybeendeductedat
sourcefromsuchincome.
TherearecertainprovisionsunderIndiantaxlawswhereinNRIscanoptforspecialtaxrates(insteadof
progressiveslabratesapplicableinIndia)forspecificinvestmentincomesorcapitalgainsfromforeign
exchangeassets.Further,theinterestearnedbyanNRIonhisNREbankaccountetcistaxfreesubjectto
certainconditions.
Hence,keepingtheaboveinmind,work/businessassignmentstodifferentcountriesmaybeplannedand
structuredbetterbyNRIs(aswellastheiremployers)fromataxperspective.
(SachinHans,Seniortaxprofessional,EYcontributedtothearticle)
(Viewsexpressedarepersonal)

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