As an NRI, your India-sourced income will be taxed in India

NRIs don’t have to pay taxes in India. But if they generate an income in the country, they will have to pay tax on it


Photo by: Pradeep Gaur
Photo by: Pradeep Gaur

I am an NRI and was living in Kenya for the last 11 years. Since November 2016 I have been living in India. In December 2016 I also got a job here, in the diamond polishing business, which pays me a fixed salary of about Rs1 lakh per month. Depending on external factors, I may or may not go back to Kenya. Please tell me how I should file my taxes for 2016-17? Do I still qualify as an NRI?

—Jignesh Bhatt

Residential status in India is determined based on your physical presence in India in the current financial year (FY) (1 April to 31 March) and the preceding 10 financial years .

If the individual satisfies any of the basic conditions mentioned below, he would qualify as a resident, otherwise he would qualify as a non-resident (NR):

Basic conditions:

a) Stay in India during the FY is 182 days or more; or

b) Stay in India during the relevant FY is 60 days or more and in the 4 immediately preceding FYs is 365 days or more.

A resident would qualify as a Resident and Ordinarily Resident (ROR) if both the below mentioned conditions are satisfied, otherwise he would qualify as a Resident but Not Ordinarily Resident (RNOR):

Additional conditions:

a) Resident in India in 2 of 10 FYs preceding the relevant FY;

b) Stay in the 7 years preceding the relevant FY aggregates 729 days or more.

An individual qualifying as ROR is taxable on his global income and required to report his global assets in his India tax return. However, an individual qualifying as NR or RNOR is taxable only on his India source income (i.e. income earned in India or received in India).

You may check your physical presence in India as discussed above.

If you spend more than 60 days in India during the current FY and less than 365 days during the 4 immediately preceding FYs, you would most likely qualify as Non Resident in India. As a Non Resident, only your India sourced income will be taxable in India. Income which is earned outside India and received outside India during the FY 2016-17 will not be taxable in India.

In case you qualify as Resident and Ordinarily Resident in India, your global income will be taxable in India.

I am moving to Singapore next month, for a project that is for 2 years but the project may get extended. In India I have invested in some MIPs, income from which I will be able to access while abroad. Please advise how I should pay taxes on them. Should I include them in my Singapore salary and pay tax on my entire income, or is there some other way to pay tax on the income from MIPs in India?

—Priyakar Vibhath

Any income, the source of which is located in India is taxable in India (irrespective of residential status).

MIPs or Monthly Income Plan is a mutual fund which primarily invests in debts instruments and may offer regular dividend income. Any dividend income earned from mutual funds will continue to be exempt from tax in India. Taxability on transfer of units of mutual funds depends on the type of mutual funds and the period of holding the same.

Units of non-equity (debt) oriented mutual funds, which are held for more than 36 months, are considered long term capital assets.

Long term capital gains on sale of debt mutual funds, after giving benefit for indexation, are taxable at flat 20% (excluding surcharge and cess).

Short term capital gains on the same are taxable as per the slab rates applicable for the individual.

However, a special provision is available to non-resident Indians with investment income and long term capital gains as the only sources of income. These individuals are exempt from filing a tax return in India if tax is deducted at source on such income.

It should also be noted that as you may be a resident of another country, the income from the above-mentioned sale of mutual funds may be taxable in your respective country of residence. In such case, the provisions of the relevant Double Taxation Avoidance Agreement between India and Singapore may be explored.

Sonu Iyer is tax partner and people advisory services leader, EY India

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