Residential status in India is based on physical presence



I have been living in Dubai for the past 15 years and have decided to return to India in November this year. I wanted to know how I will be taxed this year, and would it be better for me from a tax point of view to shift a little later so that my tax deduction in India starts in the next financial year (FY) 2017-18?

—Kamlesh Sharma

It is likely that your status in FY17 will be of a non-resident assuming your total physical presence in India in the year is less than 182 days. As a non-resident, you will be liable to tax in India only on income arising, earned and received in India.

Income earned and received outside India and subsequently remitted into India is not liable to tax in India in case of a non-resident.

Examples of incomes arising or earned in India include income earned from employment exercised in India, any business or profession here, sale of assets in the country, interest from bank accounts in India, among others.

Your residential status in India is determined based on your total physical presence in India in the current FY and preceding 10 FYs since taxability in India differs on the basis of residential status in India. If the individual satisfies any of the basic conditions mentioned below, the individual would qualify as a resident; otherwise she would qualify as a non-resident:

Basic conditions:

*Stay in India during the FY is 182 days or more, or stay in India during the FY is 60 days or more and is in India 365 days or more in the preceding four FYs.

A resident may either qualify as an ‘ordinarily resident’ or ‘not ordinarily resident’.

If both the additional conditions mentioned below are met, then the individual would qualify as an ordinarily resident; if not, such a person would qualify as a ‘not ordinarily resident’.

Additional conditions:

*Resident in India in 9 of 10 FYs preceding the relevant FY, and

*Stay in the 7 years preceding the relevant FY adds up to 729 days or more.

An ordinarily resident can be taxed on her worldwide income and is required to report assets held in India and outside India in the Indian tax return.

However, a ‘not ordinarily resident’ and a non-resident can be taxed in India only on income received in India or deemed to be received in India, and income accruing or arising in India or deemed to accrue or arise in India.