Tax Query: Does residential status decide your taxable income?

I worked in a foreign country for just two months in 2019 and received the salary accordingly. I also paid tax on such income. For the rest of the year, I worked in India and received a salary from my employer. How will the income tax on such income be calculated in India? Please help. 

To know whether your income is taxable in India, you should first establish your residential status according to the income tax provisions. You can test your residential status with the help of certain conditions specified in the Income Tax Act. 

Following are the conditions and additional conditions to be satisfied by the individual to be considered as a resident in India: 

• Conditions:

1. One must be in India for 182 days or more in a financial year
2. One is in India for 60 days or more in a financial year and 365 days or more in the four FYs immediately preceding the relevant FY

• Additional conditions:

1. One must be a resident in India in two out of 10 FYs immediately preceding the relevant FY, and
2. One is in India for 729 days or more in the seven years immediately preceding the relevant FY.

If the individual meets one of the conditions mentioned above but does not meet the additional conditions, then he will be considered as a Resident but not ordinarily resident in India. If he does not meet any of the conditions, then he shall be a non-resident in India. 

However, if an individual leaves India for employment during the year, he will qualify as a resident of India only if he is in India for 182 days or more during a financial year. This means the second condition of 60 days or more does not apply to him. 

Considering that you have worked and lived outside India for only two months in the financial year, your residential status will be that of a resident and ordinarily resident (ROR) in India.

Being a ROR, your entire global income is taxable in India. You will have to report such foreign income in your income tax return, and it will be taxed accordingly. However, you can avoid paying taxes on the same income twice and also can claim the credit of foreign taxes paid by referring to the Double Tax Avoidance Agreement between India and the said foreign country.

For any clarifications/feedback on the topic, please contact the writer at komal.chawla@cleartax.in