I have been in the US since January 2017 and my India salary has stopped since. However, I visited India for 50 days in 2019 from 29 April to 19 June 2019 due to a health issue and returned to the US right after. Now, I wish to return to India for personal reasons. I want to avoid losing my NRI status and avoid my US salary being clubbed with India income for taxation. When is the earliest I can return without compromising on my NRI status?
—Name withheld on request
Residential status in India is determined based on total physical presence in India in the current FY and the preceding 10 FYs.
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 (NRI).
Basic conditions: a) Physical presence in India during the relevant FY is 182 days or more; or b) Physical presence in India during the relevant FY is 60 days or more and 365 days or more in the preceding four FYs.
The period of 60 days is substituted by 182 days in the following circumstances: a) For a citizen of India who leaves India in the relevant FY for the purpose of employment outside India or as a member of the crew of an Indian ship; or b) For a citizen of India or a person of Indian origin who being outside India comes on a visit to India during the relevant FY.
The term “visit" has not been defined in Income-tax laws. However, by virtue of judicial precedents, the term has been interpreted to mean “casual" or “temporary visits".
A resident may either qualify as a resident and ordinarily resident (ROR) or resident but not ordinarily resident (RNOR). If both the additional conditions mentioned below are met, then the individual would qualify as ROR; if not, such a person would qualify as a RNOR.
Additional conditions: a) Resident in India (as per the basic conditions mentioned above) in any two out of the 10 FYs preceding the relevant FY; and b) Physical presence in India is 730 days or more in the seven FYs preceding the relevant FY.
In your case, you may qualify as ROR in India for FY20 if all the below conditions are satisfied: a) Your physical presence in India is 60 days or more during FY20; b) Your physical presence in India is 365 days or more during the period 1 April 2015 to 31 March 2019; c) Your physical presence in India is 730 days or more during the period 1 April 2012 to 31 March 2019; d) You qualify as resident of India in any two out of the 10 preceding FYs.
An individual qualifying as ROR is taxable on his worldwide income in India and is required to report assets held outside India as also foreign incomes in the Indian tax return. To avoid double taxation, one may claim benefit under the Double Taxation Avoidance Agreement between India and the US.
On the other hand, an NRI or RNOR is generally not liable to tax in India on his foreign incomes (unless received in India) and is not required to report assets held outside India in the Indian tax return. In the facts of your case, since you have already come on a “visit" to India for 52 days (29 April to 19 June 2019) and are also proposing to permanently return to India, your eligibility to claim NRI status if your stay in India exceeds 60 days is likely to be highly debatable.
If you wish to retain the NRI status to avoid clubbing of US salary with Indian income for tax purposes, to steer clear of any doubts on your residential status, it would be advisable for you to restrict your stay in India to less than 60 days during FY20.
Determination of residential status is dynamic and needs fresh determination in each financial year as per the conditions stated above.
Sonu Iyer is tax partner and people advisory services leader, EY India