If I go out of the country for a year for a programme where the host country becomes an employer, and I pay taxes in that country, do I 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?
To find out if you are liable to pay tax in India and file an ITR, you need to consider two relevant factors. 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.
If you are an Indian citizen and you leave India for employment outside of India, the minimum period of 60 days as specified above will be increased to 182 days.
The additional conditions are: a) you are a resident in India in two of the 10 FYs immediately preceding the relevant FY; b) 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).
Remember that residential status has to be checked for each FY in question.
If you are a resident in India, your global income is taxed in India. If you are RNOR or NRI, only income earned, received or accrued in India is taxed in India. Therefore, in case you are resident in India and this income is earned by you outside India, it shall still be taxable in India for you. If you are RNOR or NRI, then such income earned by way of employment abroad and received outside India shall not be taxable in India. Where such income is doubly taxed, you may take benefit of the DTAA (Double Tax Avoidance Agreement) between the two countries. This can help avoid paying tax on the same income twice.
Archit Gupta is founder and chief executive officer, ClearTax. Send in your queries and views at firstname.lastname@example.org