“Tax Residency Guidelines for Indians with Foreign Income”

Determining tax residency status for Indians with foreign income is crucial for tax compliance. Here are the key points to consider:

1. Basic Conditions for Indian Tax Residency:
   • An individual is considered a Resident of India for a financial year if: i. They are in India for 182 days or more during that financial year, OR ii. They are in India for 60 days or more during the financial year and have been in India for 365 days or more during the preceding four years.
2. Revised Conditions for Indian Citizens with Foreign Income:
   • For Indian citizens or persons of Indian origin, a revised condition applies if their total Indian taxable income (excluding income from foreign sources) exceeds Rs 15 lakh.
   • If their Indian taxable income exceeds this threshold, the 60-day limit for the second basic condition is replaced with 120 days.
   • Even if such individuals stay in India for 120 days or more but less than 182 days, they are considered Resident but Not Ordinarily Resident (RNOR).
3. Determining Residential Status under Section 6(1A) of the IT Act:
   • Under Section 6(1A) of the Income Tax Act, an individual with total Indian income exceeding Rs 15 lakh is deemed a resident of India if they are not liable to tax in any other country due to domicile, residence, or similar criteria.
   • Liable to tax includes having income tax liability under the law of another country, even if subsequently exempted from such liability.
4. Classification as Resident, Not Ordinarily Resident (RNOR), or Non-Resident (NR):
   • If the basic conditions for Indian tax residency are not met, or if residency status is determined under Section 6(1A) of the IT Act, individuals are classified as follows:
     • Resident: Fulfilling basic conditions or deemed resident under Section 6(1A).
     • RNOR: Resident but Not Ordinarily Resident, subject to specified conditions, such as Indian taxable income exceeding Rs 15 lakh.
     • Non-Resident: Not meeting basic conditions or residency determined under Section 6(1A).
5. Income from Foreign Sources:
   • Income from foreign sources refers to income accrued or arising outside India (excluding income from a business controlled in or a profession set up in India) and not deemed to accrue or arise in India.
6. Threshold for Indian Sourced Income:
   • If income derived from Indian sources is up to Rs 15 lakh and the total stay in India is less than 182 days, the individual is considered a Non-Resident for the financial year.
7. Compliance and Documentation:
   • Taxpayers must ensure compliance with tax laws and maintain proper documentation to support their residency status, especially in cases involving foreign income.