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Taxability of Non Residents and Expatriates

Taxability of Non Residents and Expatriates

With the globalisation of the world trade and liberalisation of the Indian economy, the number of persons moving in or out of India in the exercise of their business, profession or employment is on the increase. This page contains information on taxability of expatriates:

Residential Status

As in most of the countries, the liability under the Indian Income tax law is also co-related to the residential status of the concerned tax payer. Section 6 of the Indian Income-Tax Act creates 3 categories as far as residential status is concerned.

Resident

An Individual is said to be resident in India in any previous year if he is in India for at least 182 days in that year or during that year he is in India for a period of at least 60 days & has been in India for at least 365 days during the 4 years preceding that year. However, the period of 60 days referred to above is increased to 182 days in case of Indian citizens who leave India as members of the crew of an Indian Ship or for Indian citizens or persons of Indian origin who, being outside India, come to visit India in any previous year.

Non-Resident

A person who is not a resident in terms of the above provisions is a non-resident.

Resident but Not Ordinarily Resident (RNOR)

A person who is otherwise resident as defined in para 10.2.1 would be RNOR if he satisfies any of the following two conditions:

  1. He has not been resident in India in 9 out of 10 preceding previous years.
    or
  2. He has not been in India for an aggregate period of 730 days or more in the preceding 7 previous years.W.e.f. 01.04.2004, the status ‘RNOR’ has been redefined as follows:-An individual shall be said to be RNOR if he has been a non-resident in India in 9 out of 10 previous years preceding or period amounting to 729 days or less during the 7 previous years preceding that year.

Scope of Taxation

Based on the residential status of payer, his tax liability will be as follows:-

(i) ResidentAll income of the previous year wherever accruing or arising or received by him including incomes deemed to have accrued or arisen.
(ii) Non-ResidentAll income accruing, arising to or deemed to have accrued or arisen or received in India.
(iii) Resident but not ordinary ResidentAll Income accruing or arising or deemed to have accrued or arisen or received in India. Moreover, all income earned outside India will also be included if the same is derived from a business or profession controlled or set up in India.

Expatriates Working in India

In case of foreign expatriate working in India, the remuneration received by him, assessable under the head ‘Salaries’, is deemed to be earned in India if it is payable to him for service rendered in India as provided in Section 9(1)(ii) of the Income Tax Act. The explanation to the aforesaid law clarifies that income in the nature of salaries payable for services rendered in India shall be regarded as income earned in India. Further, from assessment year 2000-2001 onwards income payable for the leave period which is preceded and succeeded by services rendered in India and forms part of the service contract shall also be regarded as income earned in India. Thus, irrespective of the residential status of the expatriate employee, the amount received by him as salary for services rendered in India shall be liable to tax in India being income accruing or arising in India, regardless of the place where the salary is actually received. However, there are certain exceptions to the rule which are briefly discussed below:-

  1. Remuneration of an employee of a foreign enterprise is exempt from tax if his stay in India is less than 90 days in aggregate during the financial year [Sec.10(6)(vi)]. This is subject to further relaxation under the provisions of Double Taxation Avoidance Agreement entered into by India with the respective country.
  2. Remuneration received by a foreign expatriate as an official of an embassy or high commission or consulate or trade representative of a foreign state is exempt on reciprocal basis [Sec.10(6)(ii)].
  3. Remuneration from employment on a foreign ship provided the stay of the employee does not exceed 90 days in the financial year [Sec. 10(6)(viii)].
  4. Training stipends received from foreign government (Sec.10(6)(xi)).
  5. Remuneration under co-operative technical assistance programme or technical assistance grants agreements (Sec. 10(8) & (10(8B)).

Taxability of Non Residents and Expatriates

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