Whether you are an Indian or a foreigner, Income Tax laws of India stipulate that you must pay tax on the income that you earn or receive in India. But, more importantly, you "may" be liable to pay tax even on the income that you earn "outside" India.
However, before you determine how much tax you have to pay, or even which incomes are taxable and which exempt, you must find out your "residential status".
In the eyes of Income Tax Act, you can be one of the following:
- ROR: Resident and ordinarily resident in India
- RNOR : Resident but not ordinarily resident in India
- NR : Non-resident
There is a 2-step process for this.
Step 1 determines whether you a Resident or a Non-Resident.
If it turns out that you are a Resident then:
Step 2 establishes whether you are 'ordinarily resident in India' or 'NOT ordinarily resident in India'.
Note : Before you proceed further, you must note that determining one's residential status is an annual exercise. Hence, your status may change every year.
Step 1 : Are you a Resident or a Non Resident
Have you been in India for 182 days or more in a particular financial year?
And / Or
Have you been in India for 60 days or more in a particular financial year + 365 days or more in the previous 4 financial years
If the answer to either one or both queries is Yes, then you are a Resident for that particular year.
And if the answer to both the conditions is No, you are a Non-Resident (NR)
Exception: The 2nd condition does not apply if you are an Indian citizen going abroad for a job; or an Indian citizen going abroad as a crew member of an Indian ship; or an Indian citizen / person of Indian origin coming on a visit to India. [A person is said to be of Indian origin, if he or any of his parents or grand-parents (maternal or paternal) were born in undivided India.] In other words, for such people only the 182+ days rule would apply.
If you have been classified as Resident in Step 1, you move to Step 2.
Step 2 : Are you 'ordinarily resident' or 'not ordinarily resident'
Have you been resident in India for at least 2 years out of the previous 10 financial years?
And / Or
Your stay in India is 730 days or more during the previous 7 financial years?
If the answer to both the conditions is Yes, then you are 'resident and ordinarily resident' (ROR).
And if the answer to both or even one query is No, you are 'resident but not ordinarily resident' (RNOR).
So, now based on the above explanation, you can easily determine whether in any given financial year you are a ROR, RNOR or NR. Accordingly, you would know those incomes on which you have pay tax in India and those which you can exclude for India's income tax purposes.
Additional Information:
1. When you are calculating the number of days, you have to include the day you left India and the day you arrived in India as part of your total stay in India.
2. Stay in India includes stay in territorial waters of India i.e. up to 12 nautical miles into the sea.
3. The stay need not be continuous. All different periods of stay in India have to be added up.
Now, we come to the taxation aspect:
1. If you are a NR (Non Resident)
a) You are liable to pay tax "only" on the income earned in India.
b) You are "not taxed" on any income earned outside India "nor" on the income earned outside India out of a business controlled from India or a profession set-up in India
2. If you are RNOR (resident but not ordinarily resident)
a) You are liable to pay tax on the income earned in India + on the income earned outside India out of a business controlled from India or a profession set-up in India
b) You are "not taxed" on any income earned outside India
3. If you are ROR (resident and ordinarily resident)
You are liable to pay tax on all types of incomes i.e.
a) what you earn in India
b) earnings outside India out of a business controlled from India or a profession set-up in India,
c) and also on all other incomes earned outside India
(Note: Since laws are a play of words, as per the IT Act "income earned" covers income that accrues or arises in India, deemed to accrue or arise in India, received / deemed to be received in India.)
Some common examples of income earned in India include the following:
- Capital gains on sale of property in India
- Income from business connection in India
- Salary for services rendered in India
- Dividend from an Indian company
- Income from property, assets or other sources of income located in India
- Interest received from Govt. of India
- Royalty/fees for technical services received from Govt. of India
- Transferred balance in case of reorganization of unrecognized provident fund
- Interest exceeding 9.5% p.a. or employer's contribution exceeding 12% of the salary w.r.t. a recognized PF account of an employee
- Indian national receiving any salary (excluding allowances and perquisites) from Govt. of India for services rendered outside India
... and more...
However, before you determine how much tax you have to pay, or even which incomes are taxable and which exempt, you must find out your "residential status".
In the eyes of Income Tax Act, you can be one of the following:
- ROR: Resident and ordinarily resident in India
- RNOR : Resident but not ordinarily resident in India
- NR : Non-resident
There is a 2-step process for this.
Step 1 determines whether you a Resident or a Non-Resident.
If it turns out that you are a Resident then:
Step 2 establishes whether you are 'ordinarily resident in India' or 'NOT ordinarily resident in India'.
Note : Before you proceed further, you must note that determining one's residential status is an annual exercise. Hence, your status may change every year.
Step 1 : Are you a Resident or a Non Resident
Have you been in India for 182 days or more in a particular financial year?
And / Or
Have you been in India for 60 days or more in a particular financial year + 365 days or more in the previous 4 financial years
If the answer to either one or both queries is Yes, then you are a Resident for that particular year.
And if the answer to both the conditions is No, you are a Non-Resident (NR)
Exception: The 2nd condition does not apply if you are an Indian citizen going abroad for a job; or an Indian citizen going abroad as a crew member of an Indian ship; or an Indian citizen / person of Indian origin coming on a visit to India. [A person is said to be of Indian origin, if he or any of his parents or grand-parents (maternal or paternal) were born in undivided India.] In other words, for such people only the 182+ days rule would apply.
If you have been classified as Resident in Step 1, you move to Step 2.
 |
| Quickly determine your residential status as per Income Tax in India. |
Step 2 : Are you 'ordinarily resident' or 'not ordinarily resident'
Have you been resident in India for at least 2 years out of the previous 10 financial years?
And / Or
Your stay in India is 730 days or more during the previous 7 financial years?
If the answer to both the conditions is Yes, then you are 'resident and ordinarily resident' (ROR).
And if the answer to both or even one query is No, you are 'resident but not ordinarily resident' (RNOR).
So, now based on the above explanation, you can easily determine whether in any given financial year you are a ROR, RNOR or NR. Accordingly, you would know those incomes on which you have pay tax in India and those which you can exclude for India's income tax purposes.
Additional Information:
1. When you are calculating the number of days, you have to include the day you left India and the day you arrived in India as part of your total stay in India.
2. Stay in India includes stay in territorial waters of India i.e. up to 12 nautical miles into the sea.
3. The stay need not be continuous. All different periods of stay in India have to be added up.
Now, we come to the taxation aspect:
1. If you are a NR (Non Resident)
a) You are liable to pay tax "only" on the income earned in India.
b) You are "not taxed" on any income earned outside India "nor" on the income earned outside India out of a business controlled from India or a profession set-up in India
2. If you are RNOR (resident but not ordinarily resident)
a) You are liable to pay tax on the income earned in India + on the income earned outside India out of a business controlled from India or a profession set-up in India
b) You are "not taxed" on any income earned outside India
3. If you are ROR (resident and ordinarily resident)
You are liable to pay tax on all types of incomes i.e.
a) what you earn in India
b) earnings outside India out of a business controlled from India or a profession set-up in India,
c) and also on all other incomes earned outside India
(Note: Since laws are a play of words, as per the IT Act "income earned" covers income that accrues or arises in India, deemed to accrue or arise in India, received / deemed to be received in India.)
Some common examples of income earned in India include the following:
- Capital gains on sale of property in India
- Income from business connection in India
- Salary for services rendered in India
- Dividend from an Indian company
- Income from property, assets or other sources of income located in India
- Interest received from Govt. of India
- Royalty/fees for technical services received from Govt. of India
- Transferred balance in case of reorganization of unrecognized provident fund
- Interest exceeding 9.5% p.a. or employer's contribution exceeding 12% of the salary w.r.t. a recognized PF account of an employee
- Indian national receiving any salary (excluding allowances and perquisites) from Govt. of India for services rendered outside India
... and more...
