Residential status is based on physical presence in India

An individual qualifying as resident and ordinarily resident is taxable on her global income and is required to report her global assets in her India tax return


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I have been working abroad since 2001, holding a non-resident external (NRE) status. I’m planning to return to India as I am retiring. Will the lump sum money I get be taxable if I file tax returns as an Indian resident in 2015-16? Or, should I stay abroad and return only in April 2016 after completion of 183-plus days abroad and file tax returns as an NRE in 2015-16?

—Nachiket Singh

Taxability in India depends on the following factors:

a) Source of income

b) Residential status

Any income, the source of which is located in India, is taxable in India (irrespective of residential status). The residential status of an individual depends on physical presence in India during the financial year (FY)—1 April to 31 March, including working and non-working days.

A person qualifies as a resident if she satisfies any of the following conditions:

• She spends more than 182 days in India during the FY, or

• She spends 60 days in India in the relevant FY and 365 days in the previous four FY.

If none of the above mentioned conditions are satisfied, the individual would qualify as a non-resident Indian.

A resident may either qualify as a resident and ordinarily resident (ROR) or resident but not ordinarily resident (RNOR), subject to additional conditions as per the India Income-tax Act, 1961.

An individual qualifying as ROR is taxable on her global income and is required to report her global assets in her India tax return. However, an individual qualifying as a non-resident or RNOR can be taxed on her India source income (i.e., income earned in India or received in India). Depending on your physical presence in the past 7 years, you may qualify either as an ROR, RNOR or non-resident in the FY in which you return to India.

If you qualify as an RNOR or non-resident, the lump sum amount of the retirement benefit earned or received abroad would not be taxable in India. If you qualify as an ROR on the basis of your physical presence in India in earlier years, your global income will be taxable in India, and any retirement benefits received abroad will be taxable in India. But you will be able to set off any foreign tax paid on that income and get tax treaty relief if you pay tax on retirement income in the other country and if India has a tax treaty with that country.

So, yes, it may be better for you to maintain your non-resident tax status in India in FY2015-16.

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