Clarification on Residential Status as per Income Tax Act

Q & A Forum › Category: General › Clarification on Residential Status as per Income Tax Act

Sherwyn asked 8 years ago

Dear Mr. Sreekanth, I have been an Indian resident and an income tax assessee over the years. I am based in Mumbai currently. Earlier I was employed with corporates and in the last 2 years I have been doing my own business consultancy work for companies registered and based outside India and have been receiving my consultancy fees in foreign currency in India for which I am paying Income Tax in India. In the next financial year 2018-2019, I plan to move my base to Dubai for an unknown period of time. This means I will register a 'business' in Dubai that I will start to earn my consultancy fees in Dubai and I will be out of India definitely for more than 182 days between 1st April 2018 to 31st March 2019 and then follow the same pattern in the following financial years. I have the following 2 queries: 1) Whether I will be considered as an NRI (with immediate basis from year 1 itself) under the Income Tax Act and will I be exempted from paying income tax in the financial year 2018-2019 (assessment year 2019-2020) itself? Or is there any other criteria to be fulfilled before I can start getting exemption on income tax? 2) I am not taking up 'employment' in the foreign country. My earnings will be from the business that I set up. In the information that I read on the definition of residential status, it states 'Indian citizen leaving India for the purpose of employment'. Kindly clarify on the two queries above. Thanks, Sherwyn

2 Answers

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Sreekanth Staff answered 8 years ago

Dear Sherwyn, 1 - If you remain outside India for >182 days for the FY 2018-19, you will be considered as an NRI from FY 2018-19 ie AY 2019-20 itself, as you are going to carry out a business outside India. 2 - It is both employment and business. "The current tax law states that an Indian citizen who stays abroad for employment or is carrying on business for an uncertain duration is a non-resident." Kindly read : https://www.relakhs.com/residential-status-calculator-nri-taxation/ https://www.relakhs.com/double-taxation-avoidance-agreement/

Sherwyn replied 8 years ago

Thanks for your reply to my query Mr. Sreekanth.
I am confused about the condition no. 2 in the Income tax rule for NRI status which states the following:

‘Non-resident Indian’ is an individual who is a citizen of India or a person of Indian origin and who is not a resident of India. Thus, in order to determine whether an Individual is a non-resident Indian or not, his residential status is required to be determined under Section 6. As per section 6 of the Income-tax Act, an individual is said to be non-resident in India if he is not a resident in India and an individual is deemed to be resident in India in any previous year if he satisfies any of the following conditions:

1. If he is in India for a period of 182 days or more during the previous year; or

2. If he is in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year.

As per the condition no. 2 mentioned above, an individual is deemed to be resident of India in any previous year if he is in India for a period of 60 days or more during the previous year AND 365 days or more during the 4 years immediately preceding the previous year.

Assuming that I spend anywhere between 60 days and 182 days in India in the financial year 2018-2019 (assessment year 2019-2020), I will never be able to fulfill the condition of 365 days or more during the 4 years immediately preceding the previous year as I have been in India continuously in the preceding 4 years.

Does this mean I should not spend more than 60 days in India in any financial year to be absolutely exempt from Income tax?

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Sreekanth Staff answered 8 years ago

Hi, 2. If he is in India for a period of 60 days or more during the previous year AND 365 days or more during 4 years immediately preceding the previous year. Yes, one needs to satisfy both the conditions. You may also kindly consult a CA who is an expert in NRI taxation.

Sherwyn replied 8 years ago

Thanks for your reply. Can you suggest a CA in Mumbai who is an expert in NRI taxation?

Sreekanth Staff replied 8 years ago

Hi.. I currently do not have any references…