Taxability in India is based on your residential status

Residential status is determined on the basis of physical presence of an individual in India during a financial year


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I came to work on a project in New Jersey, US, in October 2015 and had received my salary in India till then. Now I am getting my India salary and US wages here. How will taxation for this financial year (FY), 2015-16, be affected?

—Rajkumar Patel

In India, taxability of income is determined on the basis of the residential status of the individual during FY (1 April to 31 March of subsequent year) and source of income.

Residential status is determined on the basis of physical presence of an individual in India during a FY. If the individual satisfies any of the basic conditions mentioned below, she would qualify as a resident; else, as a non-resident.

Basic conditions:

 Stay in India during FY is 182 days or more, or

 Stay in India during FY is 60 days or more and in four years immediately preceding the FY is 365 days or more. The 60-day period can be extended to 182 days for a citizen of India who leaves India in any FY for employment purpose outside India.

A resident may either qualify as an ordinarily resident (OR) or not ordinarily resident (NOR). If any of the additional conditions mentioned below are not met, then the individual would qualify as NOR, otherwise as an OR.

Additional conditions:

 Resident in India in nine of 10 FYs preceding the relevant FY, or

 Stay in seven years preceding the relevant FY is in aggregate 729 days or more.

If in FY16 you have spent more than 182 days in India and more than 729 days in the past 7 years (1 April 2008 to 31 March 2015), you would qualify as OR and your global income would be taxable in India. Hence, your entire India and US salary income, and any other income worldwide, would be subject to tax in India.

However, in case of double taxation of income in the US and India, credit of taxes paid in the US on such income may be claimed in India under the Double Taxation Avoidance Agreement (DTAA) entered between India and the US.

If in FY16, you have spent less than 182 days in India, you would qualify as a non-resident. Such an individual is taxed only on income sourced in India. Therefore, salary income received in the US, for the period of employment exercised in US, will not be taxed in India. However, if this salary is received in India, it will be taxed in India. In case of double taxation of income in this situation, benefit of income exclusion under India-US DTAA could be explored.

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