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I got US citizenship in February and have been staying in India since 15 April. I have received an overseas citizenship of India (OCI) card. What will be my status for bank accounts and income tax purposes? I am a retired senior citizen from India, and have only interest income in India.

—Name withheld on request

 

The rules to determine residential status under the exchange control law is different from that under the income tax law. The residential status under the exchange control law impacts the status of your bank accounts.

Under the income tax law, residential status is determined based on physical presence of an individual in India during a financial year (FY) and the preceding 10 FYs.

Residential status needs fresh determination for each year. If the individual satisfies any of the following basic conditions, he/she will qualify as a ‘resident’, otherwise he or she would qualify as a ‘non-resident’: Physical presence in India during the relevant FY is 182 days or more; physical presence in India during the relevant FY is 60 days or more and 365 days or more in the preceding four FYs; an individual, being a citizen of India, having total income, other than income from foreign sources, exceeding 15 lakh during the relevant FY, if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature (deemed residency rule).

In respect of a citizen of India or a person of Indian origin (PIO), who, being outside India, comes on a visit to India, the 60 days threshold in second basic condition is modified as follows: If total income, other than income from foreign sources, exceeds 15 lakh, the 60 days condition is substituted by 120 days; in any other case, the 60 days condition is substituted by 182 days.

A resident may either qualify as a resident and ordinarily resident (ROR) or resident but not ordinarily resident (RNOR). If any of the following additional conditions are met, then the individual would qualify as RNOR; if not, such a person would qualify as ROR: Non-resident in India (as per the basic conditions mentioned earlier) in any two out of 10 FYs preceding the relevant FY; physical presence in India is 729 days or less in the seven FYs preceding the relevant FY; resident due to 120 days rule; or resident due to deemed residency rule.

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

An individual qualifying as NR or RNOR has to pay tax on the following incomes: income accruing or arising in India; income deemed to accrue or arise in India; and income received or deemed to be received in India. In case of RNOR, income which accrues or arises outside India from business controlled or profession set up in India is also taxable in India.

Under the exchange control law, when a person leaves India for employment or for carrying on business or for any other purpose indicating his intention to stay outside India for an uncertain period, he may be considered as a “person resident outside India".

In your case, it is important to determine your residential status under the income tax law and exchange control law.

Residential status under the India income tax is based on your physical presence in India. Interest income from bank accounts in India will be taxable in India. But you may claim deduction up to 50,000 under Section 80TTB available for senior citizens aged 60 years or more during the relevant FY if you qualify as “resident" under income tax law.

Sonu Iyer is tax partner and people advisory services leader, EY India.

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