Taxability of income in India depends on the residential status of the taxpayer during the relevant Financial Year (FY). The source of income and place of receipt of income are also the factors for determining the taxation of an income.
A taxpayer’s residential status is determined based on his physical presence in India in a particular FY. The residential status of an individual can vary from one FY to another FY.
To be a resident taxpayer, he has to stay in India for 182 days or more in a financial year or for 365 days or more in the immediately 4 preceding years and 60 days or more in the relevant financial year.
For being an ordinarily resident, an individual has to meet both of the following conditions:
- has been a resident of India in at least 2 out of 10 years immediately previous years and
- has stayed in India for at least 730 days in 7 immediately preceding years
If an individual doesn’t qualify as a resident or an ordinary resident as per the criteria mentioned above, then he will be taxable only for the following incomes:
- Income received or deemed to be received in India.
- Income accruing or arising in India or deemed to accrue or arise in India.
If an individual is a resident and ordinarily resident as per income tax provisions mentioned above, then the global income of such individual will be taxable in India. Also, he will have to report all assets held outside India, such as bank accounts, immovable property and financial interests, in his income tax return.
Keeping the above provisions in mind, any foreign allowances received by the non-resident taxpayer outside India, for the services rendered outside India, will not be taxable in India. However, any salary income received by the non-resident in the local NRO account will be taxable in India, even though the services are rendered outside India.
All such income received or accrued in India will be liable to be taxed. Also, all the foreign assets present in the name of such taxpayers, liable to pay tax in India, will have to be reported in the income tax return in every financial year.