Getting a job overseas could be a reason to celebrate. But one should always remember that his income will be taxable and one cannot evade the same. However there are a few factors to lower the tax liability.
How to plan a foreign trip?
An individual should plan his trip in such a way that he becomes a Non-resident Indian (NRI) in the year when he goes abroad for the purpose of his employment. This can be done if his total period of stay in India for that year is less than 182 days.
Income Tax for Non-resident Indians:
India is the third most popular country for sourcing foreign workforce to different parts of the world. An individual is taxed on the basis of his residential status in India. Working in a foreign country does not keep one entirely income tax free.
The residential status is determined on the basis of the physical stay of an individual in the relevant financial year and in the preceding ten financial years. This is important for Indians working abroad or having income outside India.
Determination of Residential Status:
An individual can either be a resident or a non-resident in a financial year. If an individual is a resident, it is checked whether he is an ordinary resident in India or not.
The incidence of tax depends upon the residential status and the place as well as the time of accrual and receipt of income of an individual.
When does an individual become a resident?
An individual is considered as a resident in India as per Section 6 of the Income Tax Act, 196, if he fulfills any of the following two conditions.
1. If he stays in India for a period of 182 days or more in that financial year; OR
2. If he stays in India for a period of 60 days or more during the financial year and at least 365 days or more during the four preceding financial years. If an individual does not satisfy any of the aforesaid two conditions, then he is considered as a non-resident.
The judicial authorities in India have held that both the days of coming to India and leaving the country are counted while calculating the number of days of residence in India, no matter however short the duration of stay in India may be.
However it is not necessary that the stay in India should be for a continuous period. It is also not required that the stay should be at a single place in India.
Staying abroad for official tours in connection with an employment in India is not considered as employment outside India.
Citizenship and residential status as distinguished:
Citizenship of a country and residential status of a country are not the same and similar concepts. A person may be an Indian Citizen but may not be a resident and vice versa.
When is a company considered as a resident of India?
A company is considered as a resident in India, if –
(a) It is an Indian company; or
(b) During that relevant financial year, the control and management of the said company is entirely in India.
Tax obligations of Non-residents:
If an individual is a non-resident, then his income which is received or deemed to be received or accrued or deemed to be accrued in India only is taxable in India. In other words, his overseas income is not taxable in India if the same is first received outside India.
Importance of Income Tax Clearance Certificate:
Before leaving India one requires to obtain a tax clearance certificate from his Income Tax Circle Officer stating that he has no outstanding tax liability. Such a certificate is required for the continuous presence in India for more than 120 days.
An application should be made before the Income Tax Authority having jurisdiction to grant a tax clearance certificate. The said certificate is valid for a period of 1 month from the date of its issue. It is necessary for the purpose of Income Tax and one should not forget this at the time of taking up a job abroad.