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Photo: iStock

ROR’s global income, including assets held abroad, is liable to tax in India

An NRI or RNOR is not liable to income tax in India on his foreign-sourced incomes (unless received in India)

I am 55 and a US citizen. I also have an Overseas Citizen of India (OCI) card. I have been staying in India for over a year to take care of my mother, but I travel regularly to the US. For tax purposes, I am classified as a resident in India. I have income in both the countries. Do I need to offer the capital gains in the US for tax in India even if I haven’t withdrawn liquidated investments?

—Prakash

Capital gains earned in the US will be taxable in India if you qualify as resident and ordinarily resident (ROR) in India during the relevant financial year (FY).

The residency rules have changed with effect from FY21. You are a resident in India is if you satisfy any of the following conditions: (a) Physical presence in India during the relevant FY is 182 days or more; or (b) Physical presence during the relevant FY is 60 days or more and 365 days or more in the preceding four FYs. However, in respect of Indian citizens or persons of Indian origin (PIOs), who come on a visit to India, the second basic condition is modified. Here, PIO means if he or either of his parents or any of his grandparents, was born in undivided India. The modification of the second condition is as follows : (i) Instead of 60 days, physical presence in India during the relevant FY is 182 days or more; or (ii) Instead of 60 days, physical presence in India during the relevant FY is more than 120 days but less than 182 days and total income other than income from foreign sources is more than 15 lakh (120 days residency rule). Income from foreign sources is income which accrues or arises outside India (except income derived from business controlled in or profession set up in India).

A resident may either qualify as ROR or resident but not ordinarily resident (RNOR). Since you are not a citizen of India, you may qualify as RNOR under either of the following three circumstances : (i) You are non-resident in India in nine of 10 FYs preceding the relevant FY; or (ii) Your physical presence in India is 729 days or less in the seven FYs preceding the relevant FY; or (iii) You are resident in India during the relevant FY due to 120 days residency rule.

An individual qualifying as ROR is taxed on his worldwide income in India and is required to report assets held outside India as also foreign incomes in the Indian tax return. An individual qualifying as a non-resident or RNOR is not liable to tax in India on his foreign-sourced incomes (unless received in India). As you are staying in India for more than a year, you may likely qualify as RNOR and, therefore, will be taxed on India-sourced income only. You will not be liable to tax in India on capital gains arising and received in the US.

However, due to your past physical presence in India, if you qualify as ROR in India, you will be taxed on your worldwide income in India, including capital gains earned in the US. Thus, you will be liable to tax on realized capital gains earned in the US even though you have not withdrawn liquidated investments.

In case of double taxation, foreign tax credit may be claimed in the resident country under the Double Taxation Avoidance Agreement.

Sonu Iyer is tax partner and people advisory services leader, EY India. Queries at mintmoney@livemint.com

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