Income Tax on Foreign Income

Foreign income refers to income which has been brought into India from foreign countries. Under the Income Tax Act, the tax liability of a person in respect of foreign income is determined based on the residential status of a taxpayer. The residential status under the Income Tax Act is divided into three categories namely:

Resident but not ordinarily resident;
Resident and ordinarily resident; and
Non-resident.

Based on the category under which an assessed falls under, the tax liability would vary as under:

Residents and Ordinarily Resident

Persons who fall under the category of Residents and Ordinarily Resident will be charged income tax on all income accruing, received or deemed to be received in India in the financial year by or on behalf of the taxpayer. Further, Income accruing or arising outside India in the previous year (not received in India) will also be chargeable to Income Tax.

Resident but Not Ordinarily Resident

Persons who fall under the category of Residents but NOT Ordinarily Resident will be charged income tax on all income accruing, received or deemed to be received in India in the financial year by or on behalf of such person. Further, income tax will be chargeable on income accruing or arising outside India and derived from a business or profession set up.

Non-Residents

Persons who fall under the category of Non-Residents will be charged income tax on all income accruing, received or deemed to be received in India in the previous year by or on behalf of the person.

Income Deemed to Accrue or Arise in India

The following income will be deemed to accrue or arise in India for all of the above types of taxpayers:

Incomes accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset, situated in India. Certain exceptions have been laid down to this clause;
Income which falls under the head “Salaries”, if it earned in India;
Income chargeable under the head “Salaries”, payable by the government to a citizen of India for service outside India;
A dividend paid by an Indian company outside India;
Income by way of interest payable by the Government, and in some other special cases of NRIs, etc.;
Income by way of royalty payable by the Government or a resident or a non-resident in the specified cases;
Income by way of fees or technical services payable by the government or a resident or a non-resident in the specified cases.

To know about the digital payment facility introduced by the government, click Income Tax on Foreign Income.

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Frequently Asked Questions

Common questions about Income Tax on Foreign Income: Resident Status Impact.

If you are a resident and ordinarily resident in India, your global income (income received in India as well as income accruing or arising outside India) will be taxable in India. This means that any foreign income you earn, whether received in India or not, will be subject to Indian income tax.

Non-residents are taxed only on the income that is received or deemed to be received in India. Any income accruing or arising outside India will not be taxable in India for a non-resident.

For individuals who are residents but not ordinarily residents, income accruing or arising outside India is taxable only if it is derived from a business or profession controlled in India or a profession set up in India. Other foreign income is not taxable in India for this category of individuals.

Income accruing or arising, directly or indirectly, through a business connection in India, property in India, asset or source of income in India, or transfer of a capital asset situated in India is deemed to accrue or arise in India and is taxable in India, regardless of the taxpayer's residential status.

Yes, income earned by an Indian citizen for services rendered outside India, if paid by the Government of India, is deemed to accrue or arise in India and is taxable in India, irrespective of the residential status of the individual.

Yes, dividends paid by an Indian company outside India are considered to be income deemed to accrue or arise in India and are taxable in India, regardless of the residential status of the recipient.

Income by way of royalties or fees for technical services payable by the Government of India, an Indian resident, or a non-resident is deemed to accrue or arise in India and is taxable in India, irrespective of the residential status of the recipient.

Yes, income earned by a non-resident in the form of salaries for services rendered in India is considered to be income accruing or arising in India and is taxable in India, irrespective of the residential status of the individual.

Yes, there are certain exceptions to the rules of taxation of foreign income in India. For example, certain categories of income earned by non-resident Indians (NRIs) may be exempt from tax in India, subject to specific conditions.

Your residential status for income tax purposes in India is determined based on the number of days you reside in India during a financial year and other criteria related to your stay and type of income. The Income Tax Act provides specific rules and conditions to determine your residential status as a resident and ordinarily resident, resident but not ordinarily resident, or non-resident.