In India, taxation is based on Residence status of a person. If a person 1) stays in India 182 days or more in a financial year (1st April to 31st March of following year) or 2) stays in India for 60 days or more and 365 days or more in last 4 preceding years, the person becomes a Resident. Those persons that do not meet either criteria 1 or 2 noted above are considered Non Residents (NR) or frequently called NRI. The scope of income taxed, i.e. Indian source or global income is determined by residence, so a NR does not get taxed on global income and there are other tax concessions. Only India source income is taxed for NR. There is a further classification of Resident and not Ordinary Resident (RNOR) that further fine tunes scope of income (example, business controlled in India) that can be taxed in India.
The latest finance bill 2020 in India introduced some changes in NRI taxation related to the above. The stay in India criteria of less than 182 days was changed to be 120 days but only if the taxable income in India is rupees 15 lakhs. The reduced days makes some persons who were Non Residents (NR) now become Residents, especially a Resident and not Ordinary Resident (RNOR) and while global income will not be taxed like before (taxed if Resident and Ordinary Residents ROR), India source income (income that accrues or arises outside India from business controlled in India or profession setup in India) will now get taxed in India due to the new criteria. The impact is that NRIs needs to plan both the period of stay in India (visits to India) as well as income in India so that they do not become RNOR, and thus get some more taxable income or higher tax rates compared to before. For persons who don’t have Indian income that meet the criteria or don’t have income from currently not taxed at concessional rates by being a NR (India source directly or indirectly), this rule will not have impact. Please refer separate blog article “NRI Returns to India – Changes to Expect) for a more detailed analysis of NRI taxation based on tax residency governed by days of stay.
