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Friday, April 6, 2012

Income Tax Liabilities for Non-Resident Indias

One of my long-time friends Vadi asked for an article on Income and Taxation for NRI’s. So, here we are… The purpose of this post is to elaborate on the tax implications under the following 3 scenarios:
1. Someone who goes on short term visits Abroad
2. Someone who stays long-term Abroad
3. Someone who returns to India on a Permanent Basis after a long stint Abroad

Scenario 1: Short Term Visits Abroad

An Indian is considered an NRI (Non Resident Indian) if they stay outside of India for a period of 182 days or more in a single financial year. So, if you are someone who goes on short business trips abroad but overall stays for more than 182 days in a year in India, then you are not an NRI. In such scenarios, below is how you earn an Income:
1. Your Monthly Salary is credited into your Bank Account in India
2. You are paid an allowance to sustain yourself while Abroad

In such cases, the below Taxation Rules Apply:

Taxation in India:
1. The Income Earned in India (The amount that got credited into your bank account here) is fully taxable as per the Indian Income Tax Laws
2. Your employer will deduct the appropriate amount as TDS and remit it to the Tax Department
3. If the Allowance you received Abroad is used by you to sustain yourself and to meet your work obligations, then it is considered Tax Free as per section 10(14) of the Indian Tax Laws

Taxation Abroad:
1. The Taxation abroad depends on the country you visit. Each country has its own rules that govern income earned while staying in the country. You need to check the Taxation Laws of the country you are visiting to confirm this.
2. However, in most cases, if you stay for a short duration like 1 or 2 months, the tax will be minimal or even zero.

Scenario 2: Long Term Visits Abroad

If you are a Non-Resident India, who stays outside of India on long term, then below is how you earn an Income:
1. You do not get any Salary credited into your Bank Account in India
2. You are paid a Salary during your stay abroad

In such cases, the below Taxation Rules Apply:

Taxation in India:
1. As there is no Income earned in India, you have no Tax Liability in India
2. In some cases (esp. if you are sent Onsite), your employer will credit just the Provident Fund amount into your PF Account. This amount will definitely be lower than the minimal income requirement to pay taxes or file returns. So, you need not worry about this

Taxation Abroad:
1. As you are earning an income in foreign currency during your long-term stay abroad, the income you earn there is taxable as per the laws applicable in your country of residence.

Scenario 3: Returning Permanently to India

If you are an NRI who is returning permanently to India, then your Non-Resident Indian status will cease to apply. The moment you start earning an income in India you need to start paying taxes in India. However, if you are someone who stayed for a long time abroad you will definitely have saved up some money abroad. This could include investments, forex and any other assets as well. So, the below taxation rules apply for you:
1. The Income earned (once you return to India) here is taxable as per the Indian Tax Laws
2. Your employer will deduct the appropriate amount as TDS and remit it to the Tax Department
3. The moment you repatriate your foreign assets to India, they will be considered Wealth and as per the new Taxation Laws proposed by the Finance Minister in 2012, they are subject to Wealth Tax. You can visit the article titled Some More Bad News after Budget 2012 - Change to Wealth tax Rules in India to know more about this.

Repatriating Money from Abroad and the Tax Implications on the same:

In the previous section, we saw that, as an NRI you may own assets abroad. At some point you may want to bring that wealth into India. As you guessed, there will definitely be some tax implications when you repatriate that money.

As per the Indian Tax Laws:
1. Forex and other overseas assets held by the NRI while he stayed abroad can be continued to be held and owned even after you return to India.
2. You can repatriate this money anytime within 1 year of your return to India without attracting Wealth Tax in India
3. But, as explained in the post Some More Bad News after Budget 2012 - Change to Wealth tax Rules in India you need to start paying Wealth Tax on that wealth after the exemption period runs out.

Hope you found this useful!!!

22 comments:

  1. Hello,

    Income tax is a key source of funds that the government uses to fund its activities and serve the public. It is chargeable on all income arising in the State to individuals, partnerships and unincorporated bodies. Thanks a lot....

    ReplyDelete
  2. Hi Anand - please help me with understanding the tax liability in below situation :

    - Work in India till Dec 2015 and earn salary in Indian Bank A/c
    - Move to US office starting 01 Jan 2016 and start earning salary in a bank a/c there

    Questions:

    1) When filing ITR for FY 2015-16 in Jul 2016 , do we need to pay tax on salary earned in foreign bank a/c ( from 01 Jan 2016) ?
    2) If answer to above is Yes , then how to use Double Tax Avoidance as salary out of India would also be taxed

    ReplyDelete
    Replies
    1. No, you dont need to pay taxes on foreign income as long as you pay taxes there. India does not do double taxation

      Delete
  3. Hi Anand,

    I need to understand the tax liability in my case.

    Working in Germany and paying taxes here.
    Income in india is due to FD interest and short term gains in stock.

    ReplyDelete
    Replies
    1. You will have to pay taxes to the Indian government on the income generated in India through the FD's and trading in the stock market

      Delete
  4. Hi Anand,
    Please help me to understand the tax liability in the situation given below.
    Working in Germany from February till April end. India income is suspended and the PF is getting deposited from the income that is earned in germany.
    While filing ITR for FY 2015-2016, do I need to pay tax?

    ReplyDelete
    Replies
    1. What about the time April 2015 till Jan 2016?

      Delete
    2. Hi Anand,

      I am an Indian student pursuing my Ph.D. in the US. I left India to come to the US in August 2015. I am receiving a stipend here that covers my education and living expenses. I would like to know the following:

      1. Am I a resident or non-resident in India for filing tax returns? This is the first time that I have travelled out of India.

      2. Do I have to pay taxes in India on the stipend that I receive in the US?

      Thanks,
      Hitesh

      Delete
    3. Hitesh - If during the period April 1 until Aug 2015 that you left, if you had an income in India then YES you need to file tax returns for the same.

      No, you dont have to pay taxes on the stipend (or even if you receive Salary) in the US. Income that is tax paid in the country where the NRI is working is not taxed in India. However, if the money is remitted and reaches your bank acc in India and earns an Interest or gets invested, the Income generated in India will be Taxed

      Delete
    4. Hi Anand, For your question from April 2015 to Jan 2016, I was working in India

      Delete
    5. You would have to pay taxes on the income earned in India between this period

      Delete
  5. Hi, I transferred part of my savings earned in US to my mother's savings account in India. She created FD accounts from this money I transferred on her name. Does she have to pay taxes on the money I have transferred and also on the FDs? Can you please clarify what is taxable and not?

    ReplyDelete
    Replies
    1. For the money you transferred - No. For the interest she earns from the FD - Yes she has to pay taxes.

      Delete
  6. Hi Anand,
    I have different case. I was in abroad for last 5 years and very soon i will return to India. My employer (in abroad) asked for remote work from India and agreed to it. Now do i need to pay taxes in India? Because i dont earn money here.

    Regards,Naresh

    ReplyDelete
    Replies
    1. If you are paid in foreign currency and you pay tax to the country where you are earning the money, then the amount will not be taxable in India

      Delete
  7. Hi Anand
    I have been working in Kuwait since December 2015. I got my salary deposited in kuwait bank account in march 2016. This amount was remitted to india in April 2016. I understand that india does have a DTA agreement with kuwait and also there are no taxes in kuwait. I have filed returns and paid taxes on all my indian income.
    my question is do I need to pay taxes on my kuwait salary of December to march?

    ReplyDelete
    Replies
    1. For the income in kuwait - No.
      If you invest the money in India and make profits you need to pay taxes on the profits to india

      Delete
  8. Hi , I am an NRI on a dependent visa in the Middle East. I have got the opportunity to work from home for a US based company as an Independent contractor. My hourly basis income will be remitted to my Indian NRE account. What are the taxes applicable on this income?

    ReplyDelete
    Replies
    1. This income into your NRE account will be treated as income earned in india and this along with your other incomes like bank interest or rental income etc should be combined and you need to pay tax on this to the indian government. Of course, not all the income is taxable, you get some tax benefits which if you are unsure you can buy my book on indian income tax to understand better. See here:https://anandvijayakumar.blogspot.sg/p/books-by-this-blog-author.html

      Delete
  9. This comment has been removed by the author.

    ReplyDelete
    Replies
    1. Hi - I think what your auditor did is right. As Long as you have sufficient documentation from your employer that should be enough. Make sure there are no pending or overdue Taxes.

      Delete
    2. Dear Anand,
      Thank you so much for your advice..

      Delete

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