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A residential status is determined every year
Residential status is determined on the basis of physical presence of an individual in India during a financial year and the preceding 10 financial years
I returned to India in July, as I lost my job in Dubai due to the ovid-19 crisis. I lived in Dubai for five years and received my income there only. What will be my tax status for FY21? I will have to pay tax for income between April and June in India or Dubai?
—Name withheld on request
Taxability of income in India depends on the source of income, the residential status and the place of receipt of income.
Any income, the source of which is located in India, is taxable in India, irrespective of the residential status. Residential status is determined on the basis of physical presence of an individual in India during a financial year (i.e. from 1 April to 31 March) (including work days and non-work days) and the preceding 10 years. Residential status is dynamic and needs fresh determination for each year.
If the individual satisfies any of the basic conditions mentioned below, the individual would qualify as a resident, otherwise he or she would qualify as a non-resident (NR).
Basic conditions: physical presence in India during the relevant year is 182 days or more; or physical presence in India during the relevant year is 60 days* or more and 365 days or more in the preceding four years; or an Indian citizen if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other similar criteria and total income other than income from foreign sources is more than ₹15 lakh.
Income from foreign sources is defined to mean income which accrues or arises outside India (except income which is derived from business controlled in or profession set up in India).
*In respect of Indian citizens or persons of Indian origin, who being outside India, come on a visit to India, the 60 days threshold in second basic condition is modified as follows:
If total income other than income from foreign sources is more than ₹15 lakh, the 60 days condition is substituted by 120 days; and
In any other case, the 60 days condition is substituted by 182 days.
For Indian citizens, the 60 days condition is also extended to 182 days, if the individual has left India in the relevant year for the purpose of employment outside India or as a member of the crew of an Indian ship.
A resident may either qualify as a ‘resident and ordinarily resident’ (ROR) or resident but not ordinarily resident (RNOR). An individual may qualify as RNOR under either of the following circumstances:
Non-resident in India in nine of 10 years preceding the relevant financial year (or)
Physical presence in India is 729 days or less in the seven years preceding the relevant financial year (or)
An Indian citizen if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other similar criteria and total income other than income from foreign sources is more than ₹15 lakh (or)
An Indian citizen or a person of Indian origin, who being outside India, come on a visit to India, if his physical presence is 120 days or more but less than 182 days in India in the relevant year, his physical presence is 365 days or more in the preceding four years; and total income other than income from foreign sources is more than ₹15 lakhs.
If any of the above conditions are not satisfied, such individual may qualify as ROR in India.
An individual qualifying as NR or NOR is taxable on the following incomes:
Income accruing or arising in India;
Income deemed to accrue or arise in India;
Income received or deemed to be received in India.
An individual qualifying as ‘ROR’ is taxable on his worldwide income in India and is required to report all foreign assets in the India Income tax return (ITR). Also, the income earned from such foreign assets during the relevant year along with nature of income and head of income under which such income has been offered to tax in the India ITR needs to be reported in relation to each foreign asset.
The foreign assets to be reported include foreign bank accounts, financial interests, immovable property, accounts in which individual has signing authority, trusts, any other capital asset held by the individual outside India.
One must be very careful in reporting foreign assets or income in ITR. Any omission or inaccurate particulars may invite penal consequences under Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
Under the income-tax law, a notice for assessment in relation to any asset (including financial interest in any entity) located outside India can be served up to 16 years from the end of the relevant assessment year.
As you have returned to India in July, you may qualify as resident and ordinarily resident in India if: your physical presence in India is 182 days or more during the period 1 April 2020 to 31 March 2021; your physical presence in India is 730 days or more during the period 1 April 2013 to 31 March 2020; you qualify as resident of India in any two out of 10 financial years between 2010-11 to 2019-20.
In such case, your salary income earned in Dubai between April 2020 and June 2020 will be taxable in India. For deposit of tax due on your taxable income, you may follow advance tax mechanism as per the following schedule, during the financial year in which the income is earned: 15% of total tax by 15 June; 45% of total tax by 15 September; 75% of total tax by 15 December and 100% of total tax by 15 March 2021.
Any balance tax not paid as advance tax, may be paid as self-assessment tax before filing of ITR. However, you will be liable for interest for delay in deposit and/or non-deposit of advance tax.
However, if condition (b) or condition (c) is not satisfied as mentioned above, you may qualify as resident but not ordinarily resident. In such case your salary income between April 2020 and June 2020 received outside India will not be taxable in India.
There is no individual income tax in Dubai. Hence, there will be no double taxation in any case.
Sonu Iyer is tax partner and people advisory services leader, EY India. Queries at mintmoney@livemint.com
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First Published:5 Oct 2020, 10:48 PM IST
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