Residential status is dynamic and has to be determined each year
The residential status in India is determined basis physical presence in India in the preceding 10 financial years
My work nature involves travelling to various countries. I will move to Singapore in April 2018. They will open a bank account for me in there. Here is how my travel is likely to be—April 2018 to July 2018 (Singapore); August 2018 to January 2019 (Malaysia); February 2019 to August 2019 (Mumbai and Bangalore, India) and September 2019 to March 2020 (Dubai). How will the tax be treated when I am in India in that financial year? I am told that Singapore follows calendar year for tax assessment. What should I keep in mind while filing taxes in India?
Taxability in India depends on source of income and residential status. Typically, the source of income lies where the services are performed or where the asset from which the income arises is located. Any income, the source of which is located in India, is taxable in India.
Residential status is dynamic and needs fresh determination in each financial year. The residential status in India is determined basis physical presence in India in the preceding 10 financial years. Basis the information provided, for FY2018-19, your physical presence in India is likely to be more than 60 days but less than 182 days.
As you return to India during FY2018-19, the condition that you have left India for the purpose of employment outside India may not be satisfied. However, it will be important to analyse whether being outside India, you are on a visit to India. For FY2019-20, your physical presence in India is likely to be more than 60 days but less than 182 days (April 2019 to August 2019). Thus, it is important to analyse whether being outside India, you are on a visit to India.
The term ‘visit’ has not been defined under the India income-tax laws. Basis dictionary meanings, judicial precedents and legislative intent, the term ‘visit’ may be interpreted to include visits of all nature irrespective of the purpose for which such individual comes to India, provided the stay in India is temporary and the individual has stronger bondage outside India. So, if an individual comes back to India for good, it cannot be said that he is on a ‘visit’.
Determination of residential status is a fact-based exercise. You may seek professional advice on determining residential status in India.
Some of the important things you may consider are:
1. Keep a record of days in India (including day of arrival and day of departure) and the purpose of each visit.
2. Keep a record of assets outside India such as bank accounts, foreign investments, immovable properties; as these need to be reported in the income-tax return if you qualify as an ordinary resident (OR) in India.
3. Pay taxes and file India-income tax return if your total taxable income (gross income excluding exempt income before considering specified tax deductions) exceeds the threshold for taxable income for the relevant financial year.
I have been in the US for 3 years. My company is sending me to India for 10-12 months. I will continue to receive the salary in my US account. Will I have to pay tax in India as it is only for a short-term project?
—Name withheld on request
Taxability in India depends on source of income and residential status. Typically, the source of income lies where services are performed or where the asset from which income arises is located. Any income, the source of which is in India, is taxable in India.
Under the income-tax law, salary income for services rendered in India is considered as deemed to accrue or arise in India and taxable in India even if received outside India. Further, the employer is required to withhold tax on a monthly basis on the taxable salary income of the employee.
In such case, salary received in your US bank account for services rendered in India will be taxable in India. Under the India income-tax law, your employer is required to withhold tax every month on your taxable salary in India.
In case no tax is withheld by the employer, tax can be either paid by way of advance tax, or before filing a return, along with interest, by 31 July.
There is a requirement to pay taxes and file India-income tax return in case your total taxable income exceeds the threshold for taxable income for the relevant financial year.
Also, in case your income is subject to double taxation, both in India and the US, then applicable provisions of the Double Taxation Avoidance Agreement (DTAA) between India and the US may be analysed to claim any available benefit.
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Sonu Iyer is tax partner and people advisory services leader, EY India.