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Account lager with Indian money (istockphoto)
Account lager with Indian money (istockphoto)

Taxability depends on the source of income

The global income of an individual, who is an ROR is taxable and the individual is required to report all foreign assets

I have been living in London since 2001. I will retire next year and plan to return to India soon after. I will get my retirement corpus and other benefits later next year. How will this money be taxed in India if I am a resident in India?

—Name withheld on request

Taxability of income in India depends on the following factors: a. source of income; b. 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 financial 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 FY is 182 days or more; or

Physical presence in India during the relevant FY is 60 days or more and 365 days or more in the preceding 4 FYs; 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 second basic condition is modified as follows:

Instead of 60 days, physical presence in India during the relevant FY is 182 days or more; or

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.

For Indian citizens, the 60 days condition is also extended to 182 days, if the individual has left India in the relevant FY for the purpose of employment outside India or as a member of the crew of an Indian ship.

However, the above conditions for such extension may not be applicable in your case.

A ‘resident’ may either qualify as a ‘resident and ordinarily resident’ (ROR) or ‘resident but not ordinarily resident’ (NOR). An individual may qualify as NOR under either of the following circumstances:

Non-resident in India in nine of 10 FYs preceding the relevant FY (or)

Physical presence in India is 729 days or less in the seven FYs preceding the relevant FY (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 (PIO) if his physical presence is 120 days or more but less than 182 days in India in the relevant FY, his physical presence is 365 days or more in the preceding four FYs; and total income other than income from foreign sources is more than 15 lakh.

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 accrue or arise in India;

Income deemed to accrue or arise in India;

Income received or deemed to receive in India.

An individual qualifying as ROR is taxable on global income and is required to report all foreign assets (such as bank, house property and financial investments, among others) in the India income tax return (ITR). Also, the income earned from such foreign assets during the relevant FY along with nature of income and head of income under which such income has been offered to tax in ITR needs to be reported in relation to each foreign asset.

In your case, if you qualify as NR or NOR in India, retirement money and corpus earned and received in the UK will not be taxable in India.

However, if you qualify as ROR in India, then such retirement money and corpus received in the UK will be taxable in India. In case of double taxation, benefit under the DTAA between India and the UK may be explored separately.

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

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