For non-residents, only income earned, received or accrued in India is taxable

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If someone goes out of the country for a year for a programme where the host country is an employer, and the person pays taxes in that country, does he still have to submit income tax return (ITR) in India for that particular year? What is the process and which ITR form will I have to fill up?

—Kulsum

To find out if you are liable to pay tax in India and file an ITR, two factors are relevant. Firstly, what is your residential status in India for tax purposes, and secondly, whether such income has been earned or received or accrued in India or outside India.

Your residential status is determined as below. You must meet any of the following conditions and both the additional conditions:

Conditions: a) you are in India for 182 days or more in the financial year (FY); or b) you are in India for 60 days or more in the FY and 365 days or more in the four FYs immediately preceding the relevant FY.

In case you are an Indian citizen and you leave India for employment outside of India, the minimum period of 60 days mentioned above will be increased to 182 days.

Additional conditions: you are resident in India in two of the 10 FYs immediately preceding the relevant FY; and you are in India in the seven years immediately preceding the relevant FY for 729 days or more.

If you meet any of the first set of conditions and both the additional conditions, you shall be considered a resident in India. If you meet any of the first conditions but do not meet the additional conditions, you shall be considered a resident but not ordinarily resident (RNOR) in India. If you do not meet any of the first conditions, you shall be a non-resident in India (NRI).

If you are a resident in India, your global income is taxed in India. If you are RNOR or NRI, only income that is earned or received or accrued in India is taxed here. If you are a resident in India, this income is earned by you outside India, and shall be taxable in India. But if you are an RNOR or NRI, then such income earned by way of employment abroad and received outside India shall not be taxable in India.

There are many US citizens living in India who still maintain some of their assets in the US. Should they report their US investments in India? If yes, what’s the process?

—Sam

As per the Income-tax Act, 1961, a person who is a resident in India and who meets the below criteria, is mandatorily required to file ITR in India and report details of all foreign assets and foreign incomes earned in his/her ITR.

i) A person who has any asset (including financial interest in any entity) located outside India; ii) a person who has signing authority in any account located outside India; iii) a person who has income from any source outside India.

Such income and assets must be mandatorily reported in Schedule FA (foreign assets) while filing ITR in India. Not doing so can invite a notice and penalty from the income tax department.

Archit Gupta is founder and chief executive officer, ClearTax. Queries and views at mintmoney@livemint.com


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