Non-Resident Indians (NRIs) must pay certain taxes, while others are not required. Taxation can be confusing, especially when sorted by different aspects. Getting into the details of NRI Income Tax requires a complete understanding of the NRI taxation in India.
Definition of NRI as per Income Tax Act, 1961
There is no direct definition of Non Resident Indians (NRIs) in the income tax act, but it outlines certain criteria for certifying citizens as Indian residents:
A citizen who resided in India in the previous year will be considered to be a resident of India under Income Tax regulations if they:
He/she is in India for at least 182 days in that year, OR
An individual who hadn’t been in India for at least 182 days in the previous year, but who had been in India at least 365 days during the last four years to that year and at least 60 days that year, is eligible.
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Case 1: Consider you were in India for 207 days in 2019, then you are a resident of India for 2019.
Case 2: Say, you were in India for 70 days in 2019, then you fail the first criteria! But you were in India during the entire time span of 2014-2018. Then you are a resident of India in spite of not being in the country for at least 182 days in 2019.
Those individuals who do not meet either of these two criteria will be treated as Non-Resident Indians (NRIs) under the Income Tax Regulations.
An amendment to the definition of NRI in the IT Act took effect on 1st April 2020, so let’s take a closer look at that as well:
Amendment in the Definition of NRI as per Income Tax
As per the amendments to the Income Tax Act of 2020, NRIs with gross taxable income in India over Rs. 15 lakhs will be exempt from paying income tax on their India taxable income as follows:
A person who stays in India for 120 days (instead of 182 days in the previous year) is considered to be in India for at least 12 months.
We calculate whether he/she was in India for at least 365 days during the last 4 years to that year
If the criteria is satisfied, they become Residents.
The Residential Status of an individual in India determines what taxes they will pay. Taxes are deducted based on your income if you are an NRI. I want you to understand this:
A resident of India is liable to pay taxes on their global income
As a Non-Resident Indian (NRI), only your income generated in India is taxed
DTAA (Double Tax Avoidance Agreement): Avoid Paying double taxes
Treaties such as DTAA (Double Tax Avoidance Agreement) eliminate double taxation between countries. Taxes in your country of residence are not due if you have already paid them in India. It is possible, however, for tax slabs to differ. If this is the case, you must pay the residual taxes in your country of residence. As an example, if you paid 20% tax in the USA and paid 15% in India through TDS defined under DTAA with the USA, then you must pay the remaining 5% tax in the USA. Additionally, people with incomes from Gulf countries, where income taxes are not applicable, do not have to pay any taxes in India.
There are various documents required to avail the benefits under DTAA, which are:
Self-declaration cum indemnity format
Self-attested PAN card copy
Self-attested visa and passport copy
PIO proof copy (if applicable)
Tax Residency Certificate (TRC)
Unless an individual provides the deductor with a Tax Residency Certificate, he or she will not be eligible to claim relief under Double Taxation Avoidance Agreements. To obtain a Tax Residency Certificate, a Form 10FA (Application for Certificate of Residence under Section 90 and 90A of the Income Tax Act, 1961) must be filed with the income tax authorities. The certificate will be issued in Form 10FB once the application has been processed successfully.