Tax Liability of Non-Resident Indians working Abroad

With India moving towards a globalized age with sturdier economic relations being forged with developed and developing markets, employee engagements throughout the globe is quite a normal phenomenon. These employees, who are sent to assignments or business projects to other nations, overlap two different jurisdictions for tax purposes and have to comply with the tax regulations in both the countries.

Tax Liability as NRI
Tax Liability as NRI

Limit of Stay in India for being called NRI-NRI’s also better known as Non-Resident Indians are Indian citizens or PIO (Persons of Indian origin) who are qualified as Non-Residents in India for a particular financial year. According to Indian Income tax rules, a ‘Non-Resident’ is an individual present in India for a period less than 60 days during a relevant financial year, and for Indian citizens who leave the country for employment purposes; such limit is substituted by 182 days. Moreover, if NRI visits India, he would be considered as a Non-Resident if his overall stay is lesser than 182 days in the particular financial year.

Which Incomes are taxable- The income which is received by NRIs in their bank account located overseas is not considered for tax purposes. Though, the salary which is received in India will be taxable. However, an exemption can be claimed under the DPS (Dependent Personal Services) clause provided in the DTAA (Double Taxation Avoidance Agreement) which is entered into between India and the host country, in cases where the said individual qualifies to be a resident of the respective host country.

Foreign tax credits can also be requested by Non-Resident Indian overseas for incomes which are taxed both the countries, this is as per the prescribed rules framed under DTAA and the domestic tax laws. It is important to keep in mind that an NRI who intends to benefit from any of the tax incentives mentioned in a DTAA, he is required to apply and obtain a Tax Residency Certificate with respect of every financial year. These certificates need to be issued by the country where the residency of the individual is broken.

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What about income accrued in India to NRI- Income accrued in India such as bank interest, property income in form of rentals etc. is chargeable to tax in India and various exemptions which are available such as 80C, can be availed. Furthermore, an NRI, whose income consists only of long-term capital gains or investment income or both during the financial year, is not required to file the income tax return. NRI is also not required to file his income tax return in India if he/she has already paid all the taxes in form of TDS ( Tax Deductible at Source).Indian Tax laws provide specific provisions where the NRIs can choose special tax rates with respect to capital gains arising out of foreign exchange assets or explicit investment incomes.

Taxation of NRI accounts – NRO and NRE

An NRE (Non-Resident External) account is a bank account which is opened by placing foreign currency while opening the account. NRE accounts are opened for depositing the income which is accrued or earned overseas. Funds in these accounts could be remitted overseas subject to certain terms and conditions. Interest earned on balances in NRE accounts is not liable to tax in India. Similarly, balances NRE account do fall under the purview of wealth tax.

NRO (Non-Resident Ordinary) account is a Rupee account which is opened for depositing income which earned or accrues in India on attaining the NRI status. Funds from this account are not repatriated freely outside India and a prior RBI (Reserve Bank of India) permission is required. Income earned in form of interest on these accounts is eligible for repatriation outside India after taxation.

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By keeping a note of these things, business assignments or work across different nations can be structured and planned better by the Non-resident Indians from a taxation point of view.