Taxability of income in India depends on the taxpayer’s residential status in India
Taxability of income in India depends on the taxpayer’s residential status in India

If you are a resident Indian, you need to report all foreign assets in your ITR

  • Taxability of income in India depends on the taxpayer’s residential status in India, the source of income and the place of receipt of income
  • Residential status in India is determined based on one’s physical presence in India in the current financial year (FY) and the preceding 10 FYs

I am an NRI for the current financial year. For rendering service outside India, I received Indian salary in Indian rupees in my non-resident ordinary (NRO) account and a foreign allowance in US dollars in my foreign account. I received the foreign allowance paid by my Indian employer in my foreign account (which I then transferred to my non-resident rupee or NRE account) for duties rendered outside India. My usual Indian salary (basic salary, HRA and allowances) are paid in rupees into my NRO account—this salary is also for services rendered outside India. My company’s finance team advised me to check with experts as they think that the tax deducted by the company on my Indian salary can be reclaimed while filing the income tax return. The tax I paid on my India salary is quite high. Please advise

Parthiban

Taxability of income in India depends on the taxpayer’s residential status in India, the source of income and the place of receipt of income. Residential status in India is determined based on one’s physical presence in India in the current financial year (FY) and the preceding 10 FYs.

If you qualify as resident and ordinarily resident in India, as per the India income-tax law, your global income will be taxable in India and you will be required to report all your assets outside India (such as bank accounts, immovable property and financial interests) in your income tax return.

If you qualify as a non-resident or resident but not ordinarily resident in India, as per the India Income-tax law, you will be taxable only on the following incomes:

a. Income received in India or deemed to be received in India.

b. Income accruing or arising in India or deemed to accrue or arise in India.

Assuming you satisfy the below conditions, you will qualify as non-resident in India:

a. You are an Indian passport holder.

b. You have left India for the purpose of employment outside India.

c. Your physical presence in India is of less than 182 days during the current FY.

In such a scenario, the foreign allowances you receive outside India for services rendered outside India will not be taxable in the country. However, the salary income you receive in your local NRO account will be taxable in India, even though the services are rendered outside India.

In case of double taxation of salary income received in India in the other country, you may claim benefit under the Double Taxation Avoidance Agreement (DTAA) between India and the country in question.

Salary income received in India for employment exercised outside India may be claimed as exempt from income-tax under the DTAA if:

(a) You qualify as resident of the other country as per the provisions of the DTAA.

(b) You obtain a tax residency certificate of the other country from their tax authorities.

Any excess tax deducted by your employer may be claimed as refund in your income tax return.

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Sonu Iyer is tax partner and people advisory services leader, EY India.

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