Salary earned for services rendered in India is an India sourced income
I am an Indian citizen employed in the US. My company is sending me to its India office for a one-year assignment and has agreed to keep paying me in my US account. What are the tax implications for this?
Taxability in India depends on the following factors:
—Source of income
—Place of receipt of income
Salary earned in relation to services rendered by you in India is an India-sourced income. Based on this, it is taxable in India, irrespective of the place of its receipt. Thus, your India-sourced salary would be taxable in your hands in India, even if you receive it in your US bank account.
Similarly, you would be taxable in India on any other India-sourced income, which includes interest and rental incomes from assets that you may own in India.
You may also be liable to pay tax in India on your US-sourced income, depending on your residential status and place of receipt of such income.
Residential status is determined on the basis of physical presence of an individual in India during the relevant financial year (FY), which is 1 April to 31 March, in the last 10 financial years.
You will qualify as a resident of India if you satisfy any one of the following basic conditions:
—Stay in India during the financial year is 182 days or more, or
—Stay in India during the financial year is 60 days or more, and in the 4 years immediately preceding the financial year, it should be 365 days or more.
A resident may either qualify as a resident and ordinarily resident (ROR) or resident but not ordinarily resident (RNOR). If both the additional conditions mentioned below are met, then the individual would qualify as an ROR, otherwise as an RNOR.
The additional conditions are:
—The individual qualifies as a resident of India in at least 2 financial years out of the 10 financial years preceding the relevant fiscal, and
—Stay in India during the 7 financial years preceding the relevant financial year is 730 days or more.
An individual qualifying as an ROR is taxable on her global income and is required to report her global assets in her income tax return in India. Whereas, an individual qualifying as a non-resident (NR) or RNOR is taxable in India on her India-sourced income and any income directly received in India.
An RNOR is also taxable in India, on any income derived from business controlled in or a profession set up in India, even if such income is sourced outside India.
Determination of your residential status in India would depend on the exact facts involved in your case. Assuming that you would stay in India for at least 182 days in FY 2016-17 and satisfy both the above mentioned ‘additional conditions’, you would qualify as an ROR for FY 2016-17 and would thus be taxable in India on your global income, including what is sourced in the US.
However, in case your income is subject to double taxation, both in India and the US, then provisions of the India-US Double Taxation Avoidance Agreement (DTAA) may be analysed to claim any available benefit, subject to the provisions of the treaty. In such a situation, please take advice from your tax consultant to evaluate the available treaty relief, in order to avoid double taxation.
Sonu Iyer is tax partner & people advisory services leader, EY India
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