I have been working in India for the last five years and have been regularly filing returns. Now I am going abroad to study for two years. During this period I will be earning only the amount allowed under that country’s rule for a student visa holder. Do I need to file returns in India? Also, I have systematic investment plans (SIP) that will continue from the bank account I have here. Will income from that, if any, have to be included?
Every individual whose total income exceeds the maximum amount not chargeable to tax is mandatorily required to file the returns of income. Also, the incidence of taxation depends on the residential status of an individual in a given financial year. So for computation of the total taxable income, the residential status of the individual is required to be determined under section 6 of the Income-tax Act. An individual who qualifies to be a resident and ordinarily resident in India is taxed in respect of the global income earned by her.
As per section 6, an individual is said to be a resident of India if either her presence in India in the relevant financial year is 182 days or more. Alternatively, she was present in India for 365 days or more during the last four financial years immediately preceding the relevant financial year; her presence in India should exceed 60 days in this relevant financial year. Further, an individual is considered to be a “resident and ordinarily resident” where she does not qualify to be non-resident for 9 out of 10 financial years immediately preceding the year in which she becomes resident and his presence in India was more than 729 days in seven financial years immediately preceding the year in which she becomes resident.
Since you have spent more than 182 days and also fulfil the other two conditions specified above, you shall be considered to be a resident and ordinarily resident and you shall be taxable in India on your worldwide income (the salary received by you in any other country would also be taxable in the current financial year in India). Since your income earned overseas is likely to be taxed in the country where it is received, it shall lead to a situation of double taxation. In such a scenario, you would need to look at the double taxation avoidance agreement between the country where you shall be working and India.
As regards the investment made in mutual funds, dividend received from only those mutual funds which are notified under section 10(23D) of the Act are not taxable under the Act. Any capital gain arising on transfer/sale of mutual funds is taxable in India. However, in case of equity-oriented mutual funds, which are held for a period more than 12 months, capital gains arising upon sale of such funds are exempt under section 10(38) of the Act, provided securities transaction tax is paid.
Nitin Baijal, director, BMR Advisors
Queries and views at email@example.com