How to Navigate Resident Status and Global Income
Non-resident Indians (NRIs) returning to India must carefully evaluate their residential status, as prolonged presence in the country may trigger taxation of worldwide income. Planning in the transition year is essential to avoid tax surprises. They must review advance tax obligations, as global income becoming taxable could create liability under Sections 234B and 234C of the Income-tax Act for non-payment. Proper disclosure of foreign assets and income becomes critical once resident status is triggered. Failure to comply may invite scrutiny under the Income-tax Act as well as implications under the Black Money Act.
Residential status
An individual qualifies as a resident in India if he is present in India for 182 days or more during the relevant financial year. He may also qualify as a resident if present in India for 60 days or more in the relevant financial year and 365 days or more in aggregate during the four preceding financial years. However, relaxations apply to Indian citizens and Persons of Indian Origin (PIO) visiting India, where the 60-day threshold is extended to 120 days for those with total income above Rs 15 lakh.
Further, an Indian citizen whose total income exceeds Rs 15 lakh (other than foreign income), and who is not liable to tax in any other country is deemed to be a resident in India.
Once qualifying as a resident, a further classification is required to determine whether the person is a Resident and Ordinarily Resident (ROR) or a Resident but Not Ordinarily Resident (RNOR). RNOR status is particularly relevant for returning NRIs, as it provides transitional tax relief. A citizen or a PIO is an RNOR if total income excluding income from foreign sources exceeds Rs 15 lakh and who has been in India cumulatively for 120 days or more but less than 182 days during the tax year.
The scope of taxation varies across these categories. An ROR is taxable in India on global income. In contrast, an RNOR and a Non-Resident (NR) are taxable in India only in respect of income that is received in India, accrues or arises in India.
“Returning NRIs should track their day-count carefully each financial year to anticipate when foreign income becomes taxable and plan compliance accordingly,” says Sandeep Sehgal, partner, Tax, AKM Global, a tax and consulting firm.
Review foreign resources
Returning NRIs should review foreign investments, bank accounts, and income sources early, ensuring FEMA-compliant conversion of NRE/FCNR accounts to resident accounts upon status change to maintain tax exemptions. They must maintain records of foreign tax payments for potential credit claims, estimating total tax liability, including on newly taxable foreign income.
Upon becoming resident in India, NRE and NRO accounts must be re-designated as resident accounts in accordance with FEMA regulations.
Filing tax returns
NRIs returning to India must choose their Income Tax Return (ITR) form based on their residential status and the nature of income earned. Where foreign income is taxable in India, it must be converted into Indian currency in accordance with rules. Neeraj Agarwala, partner, Nangia & Company, says if tax has been paid abroad on the same income, the taxpayer can claim Foreign Tax Credit (FTC) under Section 90 (where a DTAA exists) or Section 91 (where no treaty exists). “Proper reporting, correct currency conversion, and timely FTC compliance are essential to avoid double taxation and processing delays,” he says.
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