The Income Tax Act has not defined NRI directly.
We need to know when NRIs need to pay income tax in India.
Section 6 of the Act deals with the criteria of a Resident in India and states that anybody who does not fulfill them is a Non-Resident.
How residential status is determined?
The residential status of a person depends upon his period of stay in India. It is counted in number of days for each financial year starting from 1st April to 31st March the person stays in India.
When a NRI has to pay income tax in India?
To understand the tax liability of any individual, his residential status is to be determined first. Based on the residential status of a person along with the place from where the income is earned, the tax liability is fixed. NRIs are liable to pay income tax on all income earned in India. Income earned by NRIs outside India is not liable to tax in India.
When the income of a NRI is deemed to be earned in India?
The income of a NRI is considered to be earned in India if it is directly or indirectly received in India or if it accrues in the country.
Income is considered to have accrued in India in the following cases amongst others:
- Income arising out of a business connection in India;
- Income from a property which is located in India;
- Income from any asset situated or placed in India;
- Income from interest payable by Government of India;
- Income from any dividend paid by an Indian company though outside India.
When the income of a NRI is not deemed to be earned in India?
The following incomes are considered as not arising in India:
- Any income which arises from shooting of any cinematography film. This applies to individual NRIs. It also applies to any firm which does not have any partner who is a citizen or a company which not having any Indian shareholder resident.
- Income of a NRI running a news agency, magazine etc. and his income arises from activities relating to collection of news in India.
These incomes of NRIs are not considered to have arisen in India, as such are not taxable in India.
How is a NRI taxed?
A NRI in India is normally assessed either directly or through agents. The agents are generally employee or trustee of the NRI having any business association with them, any person through whom the NRI receives an income or the person having acquired a capital asset in India from the NRI.
A broker in India is not treated as an agent of the NRI if he has independent dealings with a non-resident broker working for the non-resident principal.