Tax liability in India is determined by the source and amount of income, place of receipt of income, and of course your residential status. As an NRI, you may have provisions for dual earnings – one in foreign currency from your investments or job in your country of residence or a third country and the other from your investment, rent, endorsements, etc. in India.
The current income tax law, applicable from 2020-21 onwards, says that if you are verified as an NRI, your income tax on foreign income received outside India will be totally free in India. But your earnings in India will be taxable as per your income type and tax category.
Another point should be noted here that if you receive your foreign income in India, it will be treated as your income generated in India and taxed accordingly.
However, resident Indians will have to pay tax on foreign income. So, if you are found to be a resident Indian, your incomes whether paid in the foreign country or in India will be taxable. Therefore, it is important for you to know the clauses that establish your tax status as an NRI and new rules for NRI in India.
Your residential status determines your tax status, which is broadly divided into two groups – Resident Indian and Non Resident Indian.
Although they look to be two clearly defined groups, their definitions get altered from time to time in the book of the Income Tax department. That is done in order to curb the rate of tax evasion with fake NRI identity.
Let’s take a glance at the current version of definitions of Resident Indian and Non-Resident Indian.
You will be considered an NRI if
- your taxable income in India was more than 15 Lakh in a FY but you stayed in India for not more than 120 days in the same FY.
- your taxable income in India was less than 15 Lakh in a FY but you stayed in India for not more than 182 days in the same FY.
For all other conditions, a citizen of India will be considered a Resident Indian from taxation point of view.
However, there is a subclause to the condition no.1 for NRI that says – even if your taxable income in India was more than 15 Lakh in a FY and you stayed in India in the same FY for 120 days or more, the income tax department will further check if your total stay in India in the the last four FYs was for 365 days. If it is found to be 365 days or more then you will be considered a resident Indian.
The below table provides NRI Tax liabilities considering the source of income and place of receipt of income.