Taxation Based on Residence Status in India
In India, taxation is determined by the residence status of a person. Here’s how it works:
Resident vs. Non-Resident (NR)
Resident:
A person who stays in India for 182 days or more in a financial year (1st April to 31st March of the following year).
A person who stays in India for 60 days or more in the financial year and 365 days or more in the last 4 preceding years.
Non-Resident (NR):
Individuals who do not meet either of the above criteria. These individuals are often referred to as NRIs (Non-Resident Indians).
Scope of Taxable Income
Resident: Taxed on global income.
Non-Resident (NR): Taxed only on income sourced from India.
There is a further classification:
Resident and Not Ordinary Resident (RNOR): Fine-tunes the scope of taxable income, which may include income from business controlled in India or profession set up in India.
Changes Introduced by Finance Bill 2020
The Finance Bill 2020 introduced changes to NRI taxation:
Stay Criteria: The stay in India criterion for less than 182 days was reduced to 120 days for individuals with taxable income in India exceeding ₹15 lakhs.
This change affects individuals who were previously considered NR but now may become Residents, particularly RNOR.
Impact on Taxation:
For RNORs, India source income (including income that accrues or arises outside India from business controlled in India or profession set up in India) will now be taxed.
NRIs must plan their stay in India and their Indian income to avoid becoming RNOR and facing higher taxes.
For individuals without substantial Indian income or income not previously taxed at concessional rates as NR, this rule may not have a significant impact.
For more detailed analysis on NRI taxation refer to link in India Income Tax website.