I was working abroad and have now resigned from my job and want to come back to India. After I leave that company, I will be entitled to receive retirement benefits, which I want to bring back with me to India. Can you please tell me if my retirement money (which is a lump sum amount) will be taxed since 2002 if I file my tax return as a resident Indian in 2016-17?
Taxability in India depends on the following factors:
► Source of income
► Residential status.
Any income, the source of which is located in India, is taxable in India (irrespective of residential status).
Residential status is determined on the basis of physical presence of an individual in India during a financial year (FY) (i.e., from 1 April to 31 March) (including work days and non-work days) and the preceding 10 FYs.
You will qualify as a non-resident in India if:
(a) Your stay within India during the current FY is less than 60 days
(b) Your stay within India during the current FY is more than 60 days but less than 182 days and your stay in India during the four immediately preceding FYs is less than 365 days.
A non-resident is taxable on India-sourced income (i.e., income that is earned in India or received in India).
Accordingly, your retirement money, which is earned and directly received outside India and then subsequently repatriated to India, will not be taxable in India.
If both the above conditions are not satisfied and you have spent 729 days or more in India during the seven immediately preceding FYs, you will qualify as Resident and Ordinarily Resident (ROR).
In such case, you will be taxable on the global income in India and required to report your global assets in the India income-tax return.
In case of an ROR, depending upon the country of origin of your retirement money, you might be able to set off the foreign tax paid against the India income-tax payable, on the doubly taxed retirement income.
I have been working in Australia for the past 2 years. Can you please tell me how India’s Double Taxation Avoidance Agreement (DTAA) with Australia affects my income—here in Australia as well as the salary that I receive back home in India?
As you have been working in Australia for the past 2 years, for FY 2016-17, you will qualify as a non-resident in India, because:
a) Your stay in India during FY 2016-17 would be less than 182 days; and
b) You have gone outside India for the purpose of employment.
As a non-resident, you will be taxed only on the income that is earned or received in India. Thus, your salary income, which is received in Australia, will not be taxable in India. However, the salary income that you received in India will continue to be taxable in India on receipt basis.
You may claim exemption from India income-tax for salary income received in India under the DTAA between Australia and India if:
(a) you qualify as a resident of Australia under DTAA
(b) a tax residency certificate is obtained from Australian tax authorities for the relevant FY.
You will need to file an income tax return in India to claim the salary income received in India as exempt from tax and claim refund of any India income tax that may have been withheld on such salary income.
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Sonu Iyer is tax partner & people advisory services leader, EY India