Taxation of Income in India – Implications for Non-Residents
Taxation regimes are sometime so confusing that most of us struggle to understand the basic provisions of the law and very often, simply give up the idea to have to do anything with taxation. In this article, we try to decode the important provisions of Income Tax law in India and present them in a simple, easy to understand manner for a better understanding of our readers.
Simply put, any person who has not been in India for a period of 182 days or more in a financial year is a ‘Non-Resident’.
Financial year for the purpose of Indian taxation laws is a period that starts from 1st April of any year till 31st March of the following year, e.g. the Financial year 2021-21 starts from 1st April 2020 and ends on 31st March 2021. So any person who has been in India for 182 days or more during this period with be a ‘Resident in India’ and a ‘Non-Resident’ if he/she has been in India for a period less than 182 days.
Taxation of ‘Non-Resident’
The tax treatment of a person’s income is dependent on his/her residential status under the Indian law. While a ‘Resident in India’ is taxed on his global income, for a ‘Non-resident’, only the income received (or deemed to be received) or accrued or arise (or deemed to accrue or arise) in India is taxable.
Accordingly, ‘Non-Resident’ taxpayers are taxable in India in respect of the following incomes:
1 Any Salary or Professional Charges received for services provided in India;
2 Any Capital Gain earned on transfer of a capital asset located in India;
3 Any rental income from a property situated in India;
4 Dividend received from a company in India;
5 Interest income earned from any deposits;
6 Any income that is deemed to be received or accrue or arise in India – this mainly consists of all income accruing or arising, directly or indirectly, through or from any business connection in India or through or from any asset or source of income in India.
‘Non-Resident’ taxpayers are also entitled to claim various deductions allowed under the Income Tax law in India. The deductions are available in respect of certain investments (e.g. Life Insurance Premium, ELSS) or expenses (e.g. Medical insurance for self and family and parents, education expense for self and children) or repayment of housing loan availed in India, etc.
Avoidance of Double-Taxation
India has ‘Double Taxation Avoidance Agreements’ (DTAA) with various countries to help ‘Non-Residents’ avoid paying double tax on the same income i.e. in the source country from where such income has been earned and then also in the country of their Residence. DTAAs are helpful in determining the place of taxability of any income and also entitles the taxpayers to claim a deduction or set-off for the taxes paid by them in the source country. Any non- resident taxpayer shall be aware of the DTAA status of the country of his residence with India and benefits and reliefs allowed under the same in order to minimise his/her income tax burden and also seek professional help whenever required.
Disclaimer: the information provided in this article is generic and is for information purposes only. Taxpayers are advised to check specific provisions of law and check the latest legal provisions as law is subject to changes from time to time. The Writer is a practicing Chartered Accountant in India and may be reached at email@example.com for any specific advice.