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!!!