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I worked in the US for three months and received salary. I paid tax there on that salary. Also, I received salary in India except for those three months. Should I pay tax in India for the US income?

—Name withheld on request

 

Taxability of an income in India depends on residential status in India, source of income and place of receipt of income. Residential status in India is determined based on physical presence in India in the current financial year (FY) and preceding 10 FYs. Residential status is dynamic and needs fresh determination each FY. Assuming you qualify as “Resident and Ordinarily Resident" in India, you are liable to tax on worldwide income in India and you are required to report all foreign incomes and assets in the India income-tax return.

Accordingly, the total salary income including salary earned and received in the US will be taxable in India. You may claim foreign tax credit in India against India income-tax payable on doubly taxed income for taxes paid in the US under Article 25(2) of the Double Taxation Avoidance Agreement (DTAA) between India and the US. To claim foreign tax credit, you will also need to file form 67 electronically before the original due date to file income-tax return. Form 67 needs to be supported by a certificate/ statement specifying the nature of income and the amount of tax deducted or paid in the US.

 

I am working with an MNC in India and I’ve been asked to move to the UK for three years. How will my income be taxed? Will I qualify as a non-resident Indian?

—Ankit

 

Taxability in India depends on residential status in India, source of income and place of receipt of income. 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 FYs. For Indian citizens, even if they do not become “Resident" based on physical presence in India, they can still become “Resident But Not Ordinarily Resident" (RNOR) based on absence of liability to pay tax in any other country or territory by reason of domicile or residence or any other criteria of similar nature, if India sourced income exceeds 15 lakhs. Residential status is dynamic and needs fresh determination for each FY.

In your case, during the FY of leaving India for employment in the UK and during the FY of employment in the UK, you may qualify as “Non Resident" (NR) of India, if you are an Indian citizen; and your physical presence in India is less than 182 days during the relevant FY. During the FY of returning to India permanently, you may qualify as “NR" of India, if your physical presence in India is less than 60 days during the relevant FY or your physical presence in India is 60 days or more during the relevant FY but less than 365 days in the preceding four FYs.

But, being an Indian citizen, even if you are “NR" as per above criteria, you may still become “RNOR", if you are not liable to pay tax in any other country or territory by reason of domicile or residence or any other criteria of similar nature and India sourced income exceeds 15 lakhs.

If you qualify as “ROR" of India during the relevant FY, salary income received and earned in the UK will be taxable in India. You may claim foreign tax credit in India against India income-tax payable on doubly taxed income for taxes paid in the UK under the Double Taxation Avoidance Agreement (DTAA) between India and the UK. To claim foreign tax credit, you will also need to file Form 67 electronically before the original due date to file income-tax return. Form 67 needs to be supported by a certificate/ statement specifying the nature of income and the amount of tax deducted or paid in the UK. If you qualify as “NR or “RNOR" of India during the relevant FY, salary income received and earned in the UK will not be taxable in India.

Sonu Iyer is tax partner at EY India.

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