Who is a non-resident for the purpose of income-tax (I-T). For levy of income-tax on any person in India, generally his physical presence in India is very important. The residential status of a person may vary from year to year so it is necessary that the status is verified every year for the financial year ending on March 31. Residential status of a person can normally be determined after the year end based on one’s physical stay in India. The Income-Tax Laws have defined the term ‘non-resident’ negatively. So, a person is a non-resident if he is not a resident. For determining as to who is a resident you have to fulfil any one of the two basic conditions.
Let us understand this with respect to the financial year ended March 31, 2020. So, you would be resident of India for income tax purpose if either you were physically present in India for 182 days or more during the period April 1, 2019, to March 31, 2020. Alternatively you also would be treated as a resident in India if you were physically present in India for 60 days or more during the year ended March 31, 2020, and were also physically present in India for 365 days or more during the period of four year beginning from April 1, 2015, to March 31, 2019. For the alternative situation, you need to satisfy both the conditions simultaneously.
There is some relaxation as to the requirement of being physically present in India for 60 days or more in India in that year in respect of the second condition for three categories of persons where you would be considered to be resident in India only if you were physically in India for 182 days or more during the year ended March 31, 2020:
An Indian citizen, who is a crew member of an Indian ship and who leaves India during that year,
An Indian Citizen leaving India to take up an employment outside India during that year and An Indian citizen or a person of Indian origin for the year, during which he visits India. However, for this category of Individuals the budget 2020 has proposed to reduce the period of physical stay from 182 days or more to more than 120 days provided the total income from Indian Sources exceeded Rs15 lakhs during the previous year.
So, in case you don’t satisfy any of the above two basic conditions you would straightway become a non-resident of the country. However, the Budget-2020 has proposed to include certain Indian citizens within the definition of a resident irrespective of their period of stay in India provided their income from Indian sources exceeded fifteen lakhs and he is not liable to pay tax on his income due to his residence, domicile or any similar criteria.
There is one more category of ‘not ordinary resident’ under the tax laws. So, once you satisfy any of the two basic conditions, you would still qualify as a resident, but not ordinary resident if you to satisfy any of the following conditions.
The first condition is that you should be a non-resident for nine years out of ten years period ended on March 31, 2019, or alternatively were in India for the seven years ending on March 31, 2019, for not more than 729 days. As proposed by Budget-2020, you would still be treated as resident, but not ordinary resident if either you are deemed to be a resident of India due to your Indian citizenship and not liable to pay tax anywhere else or you are an Indian citizen or a person of Indian origin (PIO), who have visited India and the stay during the four preceding year ended on March 31, 2019, does not exceed 365 days and the stay during the year ended March 31, 2020, being more than 120 days, but not less than 182 days.
What are implications on becoming a non resident?
Under the Indian tax laws, if you are a resident of India, all global income wherever received becomes taxable in India in spite of the fact that such foreign income might have been taxed in the country of receipt as well, subject, however, to provisions of tax credits available on taxes paid on such income and benefits available under double tax avoidance agreement entered into between India and the country.
However, for a non-resident, the income which is received in India or is accrued for asset held in India or for services rendered in India only become taxable in India. So, if your salary is directly credited to your bank account in India, while you are working abroad, the same would still become taxable in India even if you are a non-resident for income-tax purpose based on residence criteria.
Moreover, there are certain tax benefits under the income-tax laws which are available only to the resident and not available to non resident.
The writer is a tax and investment expert and can be reached at firstname.lastname@example.org and on his twitter handle @jainbalwant