Home / Money / Calculators /  Taxability of freelance income depends on residential status

I have been in the US since 2007. I will have to file my returns in India but how do I show my US savings that I deposit in India? What proof do I need to submit to show that the money I have in my bank account in India (not a non-resident Indian account) is from my US savings?

—Ganesh Nair

Salary earned in the US is generally not taxed in India unless the same has been earned due to exercise of employment in India and you have spent more than 183 days in India. I am assuming that the salary being transferred to your savings bank account in India has already been taxed in the US. Transfer of such salary to your bank account should not make you liable to tax. You could maintain the following documentation as proof:

a) Salary statements from your employer;

b) Filings with the US revenue authorities regarding payment of taxes in the US;

c) Bank statements as evidence of transfer of money.

If you are earning income from any other source, you should maintain adequate documentation to show that the same has been accounted for and taxed.

Also, under the exchange control regulations, when a resident in India leaves the country for employment or for carrying on business or vocation abroad or for any other purpose indicating her intention to stay outside India for an uncertain period, her existing account should be designated as a non-resident (ordinary) (NRO) account.

I will be staying in the UK for a year and will be doing some freelance work for which I will be paid. How will this be taxed?

—Kamini

Taxability in India of the income earned from your freelance work would depend on your residential status for tax purpose. If you stay in India for a period of 182 days or more during the year or you have stayed for 365 days or more in the previous four years and for 60 days in this year, you will be considered to be a resident for tax purposes.

I understand that you would be staying in the UK from May for a period of one year. So, considering that your stay in India will be less than 60 days during the year, you will qualify to be a non-resident Indian and the taxability of your income would depend on the provisions of the Income-tax Act, 1961, and the India–UK Double Taxation Avoidance Agreement (DTAA).

Under DTAA, your income in the UK will be taxable in India only if the services are rendered in India and if your stay in India exceeds 90 days in this fiscal year or you have a fixed base regularly available to you in India for the purpose of performing your activities. Considering that you would be freelancing and earning from services rendered in the UK, your income should be taxable in the UK as per the local tax laws and the same will not be taxed in India.

Queries and views at mintmoney@livemint.com

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