Foreign National Income Tax Filing
Foreign National Income Tax Filing
Foreign nationals are individuals who are not citizens of India. Income and capital gains earned by a foreign national in India is taxable under the Income Tax Act. Hence, foreign nationals who have an income of more than Rs.2.5 lakhs per annum and residing in India must file income tax returns before the 31st of July year. For the purpose of determining the taxability of income earned by a foreign national, the residency of the foreign national as per the Income Tax Act should be determined. If a foreign citizen is resident in India as per Income Tax Act criteria, all incomes received, accrued or arisen to him in India or abroad shall be subject to income tax in India. If a foreign citizen is not resident in India (Resident but NOT Ordinarily Resident), only incomes that are received, accrued or arisen to him in India, shall be taxable. In this article, we discuss foreign national income tax filing.
Foreign National – Residency for Income Tax
Under Income Tax, all taxpayers are divided into three categories based on residency as under:
Resident
Resident and Ordinarily Residents are those individuals (Indian Citizens and Foreign Nationals) residing in India. Resident individuals are liable to pay tax on the income the assessee earns from all over the world. An individual including foreign nationals will be treated as resident in India during the year if he or she satisfies the following conditions:
- The individual is resident in India for at least 2 years out of 10 years immediately preceding the relevant year.
- The individual stayed in India is for 730 days or more during 7 years immediately preceding the relevant year.
Resident but NOT Ordinarily Resident
A resident but not ordinarily resident is someone who does not satisfy both of the following conditions:
- The individual is resident in India for at least 2 years out of 10 years immediately preceding the relevant year.
- The individual stayed in India is for 730 days or more during 7 years immediately preceding the relevant year.
Resident but NOT Ordinarily Residents are required to pay tax on the total income earned within India. Further, they are liable to pay tax in India if they fulfil the following criteria:
- If the individual in question resides in India for an equivalent of 182 days or beyond over the duration of the taxation year in India, then this individual will be deemed to be a resident of India for the purpose of taxation, and the total of his or her income earned within India will be taxable by law.
- If the individual in question has been residing in India for a minimum of 60 days, but not more than 182 days, and has been residing in the country over the duration of the previous 4 years prior to the taxation year for a total equivalent to 365 days or beyond, then he or she will be deemed to be an Indian resident for the purpose of taxation, and the total of his or her income earned within India will be taxable by law.
Non-Residents
Non-residents are Indian citizens who are not resident in India for a period of more than 6 months. NRIs are required to pay income tax only on income earned in India. For a person to be deemed as NRI under Income Tax, the following conditions must be fulfilled:
- The individual concerned should not have resided in India for more than 182 days during the duration of a taxation year.
- The individual concerned should have resided in India for less than 365 days over the duration of the 4 years immediately prior to the taxation year in question.
Tax-Exempt Income for Foreign Nationals
The following income earned by foreign nationals are exempt from Income Tax:
Remuneration Received by Diplomats
Any remuneration received by a foreign national as an Official of an embassy, high commission, legation, commission, consulate, trade representation of a foreign state, or as a member of staff of any of these officials for service in such capacity is exempt from Income Tax.
Remuneration Received by Foreign National as Employee of Foreign Enterprise
Remuneration received by a foreign national as an employee of a foreign enterprise for services rendered by him during his/her stay in India is exempt from Income Tax. For the income to be tax-exempt, the following conditions must also be fulfilled:
- The foreign enterprise is not engaged in any trade or business in India.
- The foreign nationals stay in India does not exceed in the aggregate a period of 90 days in the previous year.
- The remuneration received by the foreign national is not liable to be deducted from the income of the employer.
Employees of Foreign Ships
Salary received by a foreign national being a non-resident employed on a foreign ship is exempt from income tax if stay in India does not exceed 90 days in the previous year.
Remuneration to Foreign Government Employees
Remuneration received by a foreign national as an employee of the Government of a Foreign State during his/her stay in India in connection with training in any establishment of an office, or in any undertaking owned by the following will be exempt from Income Tax:
- The Central Government or the Government of any State or Union Territory.
- Any company in which the entire paid-up share capital is held by the Central Government or any State Government or Governments, or partly by the Central Government and partly by one or more State Governments.
- Any company which is a subsidiary of a company referred in the point above.
- ANy corporation established by or under a Central, State or Provincial Act.
- Any society registered under the Societies Registration Act, 1860 or under any other corresponding law for the time being in force and wholly financed by the Central Government, or any State Government or Union Territory Government, or a combination of these.
To know more about the concept of taxability of gifts in India, click here.
