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Residential status, source of income decides taxability
If you qualify as an ordinarily resident in India, you will pay income tax on worldwide income in India
I work on a ship as a merchant navy officer. Though my entire salary was earned abroad in FY18, I do not have NRI status this year. Please explain the tax treatment.
—Name withheld on request
Taxability in India depends on residential status in India, source of income and place of receipt of income.
Residential status in India is determined based on physical presence in India in the current financial year (FY) and preceding 10 FYs. The basic conditions to qualify as “resident” are: physical presence in India during the relevant FY is 182 days or more; or physical presence in India during the relevant FY is 60 days or more and 365 days or more in the preceding four FYs. The period of 60 days is substituted by 182 days in the following circumstances: a) For a citizen of India, who leaves India in the relevant FY for the purpose of employment outside India or as a member of the crew of an Indian ship; or b) For a citizen of India or a person of Indian origin, who being outside India, comes on a visit to India during the relevant FY.
The term Indian ship has to be read as per Section 3(18) of the Merchant Shipping Act, 1958 i.e. a ship registered under the Merchant Shipping Act, 1958. Also, there are specific rules for computation of physical presence in India in case of an individual, who is a citizen of India and a member of the crew of a foreign bound ship leaving India.
A “resident” may either qualify as an “ordinarily resident” or “not ordinarily resident”. If both the additional conditions mentioned below are met, then the individual would qualify as an “ordinarily resident”; if not, such a person would qualify as a “not ordinarily resident”. Additional conditions are: a) “resident” in India (as per the basic conditions mentioned above) in two out of 10 FYs preceding the relevant FY and b) physical presence in India is 730 days or more in the seven FYs preceding the relevant FY.
Under the India Income-tax law, the term “India” has been defined as territory of India as referred to in Article 1 of the Constitution, its territorial waters, seabed and subsoil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, and the air space above its territory and territorial waters.
If an individual qualifies as “ordinarily resident”, his worldwide income is taxed in India and he is required to report assets held outside India in the return. However, an individual qualifying as “not ordinarily resident” or a “non-resident” will pay tax only on: a) Income received in India or deemed to be received in India and b) Income accruing or arising in India or deemed to accrue or arise in India.
If you qualify as an “ordinarily resident” in India, you will pay tax on worldwide income in India. Your salary is taxable in India even if earned abroad and received abroad. All components of your salary will be taxable in India. If you qualify as a “not ordinarily resident” or “non resident” in India, your salary earned abroad will be taxable in India only if first receipt is in India.
In case of double taxation, benefits under the tax treaty between India and the other country may be explored.
To read full answer, go to livemint.com/askmintmoney
Sonu Iyer is tax partner and people advisory services leader, EY India.
Queries and views at mintmoney@livemint.com
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First Published:21 Aug 2018, 10:46 AM IST
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