I have been a US citizen for 15 years. Despite moving back to India in September, I continue to work for a US company and my salary is credited into a foreign bank account. How can I benefit from the double taxation avoidance agreement (DTAA) on my salary earned before October? Do I need to file a tax return?
—Name withheld on request
To find out how your income will be taxed, it is important to first establish your residential status. This determined as per the Income Tax Act for each financial year. Therefore, you must determine your residential status for FY23 to find out how your income shall be taxed.
For this, you must meet certain conditions—you are in India for 182 days or more in the relevant financial year (FY); or you are in India for 60 days or more in the FY and 365 days or more in the four FYs immediately preceding the relevant FY.
In the above condition, the period of 60 days is substituted by 182 days for a citizen of India or a person of Indian origin, who lives outside India and comes to visit India in the said financial year. The same applies for a citizen of India who leaves India in the said financial year for the purpose of employment outside India or as a member of a crew of an Indian ship.
There is also another rule of deemed residency. An individual who is a citizen of India who is not liable to tax in any other country or territory has total income, other than from foreign sources, exceeding ₹15 lakh during the said FY, shall be a deemed resident of India.
For a citizen of India or a person of Indian origin, who comes on a visit to India, the 60 days are considered changed in the following manner.
If total income, other than income from foreign sources, exceeds ₹15 lakh, the 60 days are substituted by 120 days; in any other case, the 60 days are substituted by 182 days. Such persons are considered as deemed residents.
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Additional conditions: you are a resident in India in two of the 10 FYs immediately preceding the relevant FY; and you are in India in the seven years immediately preceding the relevant financial year for 729 days or more.
If you meet any of the first set of conditions and both the additional conditions, you shall be considered a resident in India. If you meet any of the first conditions but do not meet the additional ones, you shall be considered a resident but not ordinarily resident in India.
If you do not meet any of the first conditions, you shall be a non-resident in India.
In case you are determined to be a non-resident or resident but not ordinarily resident in India, you will have to pay tax on income that accrues or arises in India or incomes that are received or deemed to be received in India. However, if you qualify as a resident taxpayer, you shall have to pay tax in India on your global income including any incomes from outside India.
Therefore, in case you are a non-resident or resident but not ordinarily resident in India, income received outside India for services rendered outside India shall not be taxed in India.
However, in case you qualify as a resident the situation may be different. In order to avoid paying tax on the same income twice, you will have to refer to the DTAA between the two countries.
Archit Gupta is founder and chief executive officer, Clear.in.