Scope Of Taxability In India:
Where the headquarters of the business or profession are located.
Mere presence or absence in one jurisdiction, long or short, is not the deciding factor. The place continued or discontinued as the headquarters of the business or profession is important.
If the headquarters have shifted from one jurisdiction to another, then income can be apportioned in accordance with or shall move from one place to another.
Who Is A Non-Resident As Per Income Tax Act:
This definition applies to – An Indian Citizen or Person of Indian Origin (PIO) who is outside India, comes on a visit to India and has Indian Income + Foreign incomes from a business controlled or a profession set up in India NOT exceeding Rs. 15 Lakhs during the previous year.
An individual is a resident in India if he is in India for a period of 182 days or more during the previous year
This definition applies to – An Indian Citizen or Person of Indian Origin (PIO) who is outside India, comes on a visit to India and has Indian Income + Foreign incomes from a business controlled or a profession set up in India exceeding Rs. 15 Lakhs during the previous year.
An individual is a resident in India if he is in India for a period of 182 days or more during the previous year.
An individual is deemed to be a Resident but not Ordinarily Resident (R but not OR) in India if he is in India for a period of 120 days or more but less than 182 days during the previous year AND 365 days or more during the four years preceding that previous year.
Double Tax Avoidance Agreement (DTAA):
What is a Double Taxation Avoidance Agreement (DTAA)?
Double Taxation Avoidance Agreement (DTAA) is an agreement entered into between countries, with the basic objective to avoid, taxation of income in both countries (i.e. Double taxation of the same income) and to promote and foster economic trade and investment between the two countries.
India has DTAA with over 89 countries such as the US, the United Kingdom, the UAE, Canada, Australia, Saudi Arabia, Singapore, New Zealand, Kenya, Tanzania, South Africa, Sudan, etc.

The exemption method of relief is applicable in DTAAs with very few countries for certain incomes only. For all the remaining countries, Tax Credit Method prevails for all incomes.
Basic principle under Double Taxation Avoidance Agreement (DTAA)
The Non-Resident can select the provisions or rates of taxes, whichever are beneficial under
DTAA
or
the Income Tax Act.
Claiming DTAA benefits
To take benefit of any DTAA rates/concessions, the person has to obtain a Tax Residency Certificate (TRC) of the country in which he is a tax resident. TRC entitles benefits of the treaty to the person.
The TRC is on an annual certificate. Thus, it has to be freshly obtained and submitted every year.
The TRC, along with form 10F of the Income Tax Dept. and a declaration of the tax residency in foreign country has to be submitted to the tax deductor or while filing return.
Taxation of the same income in two countries
Credit of taxes paid in India can be availed only to the extent of the proportionate tax of the foreign (Indian) income as per Indian Income Tax for NRI. The excess shall be ignored.
The proportionate tax credit is available even when there is no DTAA with the respective foreign country.
Indian Tax Residents are supposed to pay tax on foreign incomes in India as per the Indian rates of tax.
Tax Resident Of More Than One Company:
A person can be a Tax resident of both countries:-
- A person acquires a Green Card of the USA (A special status accorded by a country) and a “Tax Resident” in India.
- A person who satisfies the Substantial Presence Test of US Tax Law (Length of stay in a country) makes an individual Tax resident of the US and he/she would be a Tax “Resident” in India also.
Exchange of information
- As per the article on ‘Exchange of Information’ in several DTAAs, the tax authorities of both jurisdictions shall exchange information relating to all taxes applicable to residents to avoid evasion of taxes or frauds.
Such exchange can be on a routine basis or on request with reference to particular cases. Either jurisdiction shall provide the other with such information and documents as requested unless it involves certain confidential data.
Remedies:
- If an individual is a tax resident of more than one country, then the TIE BREAKER RULE in the DTAA between both countries will apply.
- The test specified in DTAA between US and India are as follows:
- Place of Permanent Home, if not determinable, then Center of Vital Interest.
- If the Centre of Vital Interest cannot be determined, then Habitual Abode.
- The test specified in DTAA between US and India are as follows:
- If Habitual Abode is not possible, then the State of Nationality will be applicable.
- If Nationality is not determinable, then competent authorities of the Contracting States shall settle the question by mutual agreement.
- As per the test mentioned in DTAA, a person will be treated as a resident of one country and a non-resident of another country for Income tax purposes.
- When the person will be treated as a resident of a country, then his global income is taxable in that country (Residence Rule).
- The person will be treated as a non-resident in a country for income tax purposes and only income earned in that country will be taxable (Source Rule).
- The taxes paid as source rule will be available as a credit in Resident Rule country either by exemption method or Foreign Tax credit Method as per DTAA between both the countries.
The residency status of an individual as per other regulations like Tax on gifts, Inheritance (Estate) Tax, etc., will be applicable as usual since it is applicable to all U.S. Domiciled Individuals.
Provisions & Formalities For Returning NRI:
NRE & NRO Savings Bank Account
Returning NRI have the following two options from the day the person becomes a resident under FEMA:
- Convert their NRE & NRO savings bank account into resident Indian savings bank account.
- Convert NRE savings bank accounts can be converted into RFC savings bank account/RFC term deposit held in foreign currency.
Taxation
- The interest on converted NRO/NRE savings bank account into resident Indian savings bank account becomes taxable from the day the person becomes a resident under FEMA.
- Interest on RFC savings bank account and term deposits are exempt from Income Tax for Non-residents (NR) and Resident but not Ordinarily Resident Individuals (RBNOR).
- The interest incomes on RFC savings bank accounts & term deposits after attaining Resident & Ordinarily Resident residential status (R & OR) can be taxed at a flat rate of 20% u/s 115H.
NRE & NRO Term Deposits
Returning NRI have the following two options from the day the person becomes a resident under FEMA:
- Continue the NRE & NRO term deposits at the same terms.
- Convert NRE term deposits into RFC savings bank account/ RFC term deposits held in foreign currency.
Taxation:
- The interest on NRE term deposits continued till maturity become taxable from the date of return to India, irrespective of the residential status under Income Tax.
- The returning NRI has an option to be taxed on the interest incomes on NRE or NRO term deposits (invested from convertible foreign exchange) continued or converted (not redeemed and reinvested) into resident term deposits till maturity at a concessional flat rate of 20% u/s 115H.
- Interest on RFC savings bank account/ RFC term deposits are exempt from Income Tax for Non-residents (NR) and Resident but not Ordinarily Resident Individuals (RBNOR).
- Interest incomes on RFC savings bank account/ RFC term deposits after attaining Resident & Ordinarily Resident (R & OR) residential status can be taxed at a flat rate of 20% u/s 115H.
FCNR term deposits
Returning NRI have the following two options from the day the person becomes a resident under FEMA:
- Continue the FCNR term deposits at the same terms.
- Convert FCNR term deposits into RFC savings bank account/RFC term deposits held in foreign currency.
Taxation:
- Interest on FCNR term deposits continued are exempt from Income Tax for Non-residents (NR) and Resident but not Ordinarily Resident Individuals (RBNOR).
- The returning NRI has an option to be taxed on the interest incomes on FCNR term deposits after attaining Resident & Ordinarily Resident (R & OR) residential status at a flat rate of 20% u/s 115H.
- Interest on RFC savings bank account /RFC term deposits are exempt from Income Tax for Non-residents (NR) and Resident but not Ordinarily Resident Individuals (RBNOR).
- The interest incomes on RFC savings bank accounts/RFC term deposits after attaining Resident & Ordinarily Resident residential status (R & OR) can be taxed at a flat rate of 20% u/s 115H.
How To Compute Taxable Income When Different Financial Year In India & Abroad?
For Instance…
- Financial Year in India is from 1st April to 31st March.
- Financial Year (Tax Year) in the US is from 1st January to 31st December.
Segregating transactions in the following form :
- From 1st January to 31st December from the bank statement/investment statement.
- If more transactions have been undertaken, pass entries in computerized accounting software, then segregate them on a start & end date basis.
- We are clear about the income to be aggregated in the US tax return.
Tax Credit of the incomes taxed in India :
- For Indian incomes between 1st January to 31st March, taxes & Returns would have been filed, credit of taxes (not any interest or penalty) on that basis.
- For Indian incomes between 1st April to 31st December, credit on the basis of withholding tax in India (TDS) or advance tax paid. These advance taxes should be towards the final tax liability.
Who Should File Income Tax Return (ITR) In India?
A person whose income exceeds Rs. 2.5 lakhs in India (before giving the effect of deductions under Chapter VI-A and certain capital gains exemptions).
A person who wants to claim a refund of any taxes which have been withheld (TDS deducted).
Following categories of persons irrespective of income:
- Deposited an amount exceeding Rs.1 crore in current accounts by any mode during the year.
- Has incurred electricity expenditure in aggregate exceeding Rs.1 lakh during the year.
Incurred an expenditure exceeding Rs. 2 lakh on travel out of India from an Indian bank account during the year for himself or any other person.
Some Important Aspects Of Income Tax For NRI Representative Assessee - Agent Of A Non-Resident PAN Card & NRI
Representative Assessee, u/s 160(1) in respect of Non Resident is his / her agent or person who are treated as an agent U/s. 163 of the Income Tax Act.
Section 163 of the Income Tax Act states – agent in relation to non – resident (NR) is :
- One who is employed by NR.
- Having business connection with NR.
- From or through whom NR receives income directly or indirectly.
- Trustee of a NR.
A broker dealing with NR through NR broker is not an agent.
A Power of Attorney (POA) holder is an agent of a Non Resident u/s 163(1a) (since he is employed on behalf of Non-Resident), hence he is Representative Assessee of a Non Resident.
Every representative assessee shall be deemed to be an assessee for the purpose of the Income Tax.
Hence, a representative assessee’s liability, duties, responsibilities are at par with his own (u/s 161), as if it were his own assessment proceedings.
PAN Card & NRI
- Permanent Account Number (PAN) is a unique code allotted by Income Tax Department that acts as an identification for financial transactions of individuals.
- It is similar to Tax Identification Number (TIN) in foreign countries.
- The application for PAN can be made by non residents by filing Form No. 49AA.
- Online application for PAN card requires Aadhar card details. Hence, application can be made only in offline mode.
- Application requires either OCI card OR details of Passport + Foreign Bank account statement/Foreign utility bill/Foreign identity proof of the Non-resident applicant.
- PAN card application for delivery at a foreign address costs approx. Rs.1200 and delivery at any Indian address costs approx. Rs.100. Address proof in respect of the address of the applicant is mandatory for delivery in either case.
Requirements for obtaining PAN:
It is mandatory to quote PAN for below-mentioned transactions :
- Several financial transactions in India.
- Opening of an account with a bank (can be opened by From no. 60), Demat Account for shares.
- Filing of Income Tax Return, if the income exceeds the minimum taxable amount. It is not compulsory to file a Return of income if you have a PAN.
- For Filing a Return of Income if Income is above taxable limits.
- For claiming of refund of TDS, if deducted.
- For carry forward of losses.
- All the dealings with Income Tax department, e.g. Form 15CA – 15CB.
Penalty For Various Contraventions By NRI Under Income Tax Act:
Nature of contravention – Filing Income Tax Return (ITR) in Resident Indian status being a Non-Resident
- Taxation – The A.O. will attempt to tax global income as the assessee has claimed the Resident Indian status.
- Penalty – Misreporting or Underreporting of income u/s 270A depending on the facts of the case as only the Indian incomes were offered to tax.
- Incorrect information – When the Income Tax Dept. attempts to tax global income while the assessee claims himself as a Non-Resident, and the Dept. accepts the view of the assessee, penalty u/s 277 for such incorrect information can be levied.
Nature of contravention – Filing Income Tax Return (ITR) in Non-Resident residential status being a Resident Indian
- Taxation – The A.O. will tax global income as the assessee is not a Non-Resident but a Resident Indian.
- Penalty – Misreporting or Underreporting of income u/s 270A depending on the facts of the case as only the Indian incomes were not offered to tax.
Incorrect information – When the assessee claims himself as a Non-Resident despite being a Resident Indian under Income Tax, he can be liable for penalty u/s 277 for giving such incorrect information.
Overview of FATCA & FBAR
Tax Planning For NRI In India:
Deduction for investments U/s. 80C maximum of Rs. 1,50,000.
- Life Insurance Premium
- Equity Linked Savings Scheme of Mutual Fund (ELSS)
- Repayment of Housing Loan
- 5 Year Bank FD
- PPF (In existing A/c)
TAX PLANNING FOR H.U.F. IN CONTEXT OF U.S.A tax laws
- As per U.S. tax laws, HUF may be recognized as foreign non-grantor trust since the property is not contributed solely by the Karta or any coparcener who is the ‘owner’ of such trust.
- Therefore, it shall be assessed as a separate person under the taxation law in U.S.A. However, if the corpus of the H.U.F. is built through incomes derived out of loans granted by the Karta or any other coparcener, it may be recognized as the property contribution such person to the trust.
- In such cases, the tax authorities may regard the trust as a foreign grantor trust and tax the incomes in the hands of respective individual.
- When the Karta is a U.S. tax-resident, he should make appropriate declarations under FBAR since he is a signing authority to Indian bank accounts/financial assets if the aggregate value of all foreign financial accounts exceeded US $ 10000.
- One discretionary Family Trust can be created as a part of the WILL.
- A discretionary trust is liable to tax at the maximum marginal rate (presently 30% + Surcharge), but if formed under a WILL is liable to be taxed as a separate person at regular rates. Even deduction U/s 80 C is available.
- The Trust can have income other than business income (interest, dividend capital gains etc.).
- Discretionary Trusts are trusts where beneficiaries and / or shares of beneficiaries are not determined.
- Such Trusts are useful to take care of dependents decisively.
- Trustees can be empowered to distribute the income among the beneficiaries & at a certain stage even dissolve the trust.
- Shares of a company can also be bequeathed to such trust.
Benefits Of Faceless Operations Of Indian Income Tax Department:
Deduction for Health Insurance U/s. 80 D.
- Maximum of Rs. 25,000 for age below 60 Years and Rs. 50,000 for age above 60 Years PLUS additional Rs. 50,000 for Senior Citizen Parents.
- Deduction for donation U/s. 80G – 50%/100% of sum donated, maximum upto 10% of Gross Total Income.
- Deduction U/s. 80TTA on interest earned on Savings Bank Account (NRO A/c) maximum of Rs. 10,000.
- Increased taxable limit is not available to Senior Citizen (above 60 years) or Super Senior Citizen (above 80 years).
- Rebate U/s. 87A of Rs. 12,500 is not available for Non-residents.
- Deduction U/s. 24 is available on interest paid on Housing Loan against Income from House Property. Loss under this head can be claimed, maximum of Rs. 2,00,000 against other incomes in the year of income.
- If a NRI intends to stay for a long period in India, in order to ensure that he does not become a resident, he can split stay in two financial years.
- NRI can invest in Capital Gain Bonds U/s 54-EC to get exemption from Capital Gain.
- NRI can invest U/s 54 or 54-F in residential house to get exemption from capital gain.
- Section 10(6)(vi), 10(6)(viii), 10(6)(xi), 10(7), 10(8), 10(8A), 10(8B), 10(9) provide for relief to NR’s drawing salaries and remuneration in special cases.
- In case of refund, NRI can quote Foreign Bank Account in return of income, if Indian bank account is not available.
- Non Resident should receive his incomes abroad, and then remit such incomes credited in the foreign accounts, to India. If the incomes are received in India, they become taxable in India.
- All incomes exempt under Income Tax in India such as proceeds of insurance policy u/s 10(10D), interest on NRE account u/s 10(4), capital gain exemptions u/s 54/54EC/54F, etc. shall be taxable in the respective country of tax residence.
- Interest on NRO A/c (Savings of Fixed Deposits) is taxable. A NRI can transfer his NRO A/c balances, within the limit of 1 Million US$, per person per year to NRE A/c / FCNR deposits and make the interest income tax free.
- HUF (Hindu Undivided Family) are recognized as a separate legal entity under Indian Tax laws. Income of HUF is not the income of and individual.
- Utility of HUF as an entity for investments can be looked into for planning the tax liability abroad. NRO Bank A/c of HUF can be opened, if all the members are NRI to take advantage of separate income tax head.
Absolute change on the Tax compliance front
- All filings with the Income Tax Authorities are E-filling. Complete change on the Tax compliance front.
- Scrutiny of all Filings, Assessments, Appeals, are faceless.
- All financial transactions are mapped with Permanent Account Number (PAN).
- No scope of any personal interaction with / by any Income Tax authorities for any reasons.
- Functioning of the Income Tax Department undergoes major changes. A landmark reform going unnoticed.
- A march towards ending a parallel economy and making India a cashless & compliant economy.
Information available with the Income Tax Department in the new scenario
- Annual Information Statement (AIS) with Income Tax Department, has all the information of the financial transactions fetched by PAN.
- AIS has information like :
- Incomes Expenditures Deposits & Withdrawals of cash from Bank
- All transactions of :
- Scrip wise Sale & Purchases of Mutual Funds and Shares
- Short Term & Long Term Capital Gains bifurcations
- Credit Card Transactions aggregating Rs. 2 lakh & above
- Sale / Purchase of Immovable Properties
- Investments in Fixed Deposits etc.
- Assessee can give a response with evidence if the information in AIS is incorrect / inaccurate.
In the new scenario what NRI should be particular about :
- AIS information needs to be considered while filing annual Income Tax Return and pay tax accordingly.
- NRI should share complete information with the Tax Advisor, filing return in India, without fail.
- Contact details like Mobile Number & E-mail id with Income Tax records should be same as registered with Bank Account and should be regularly updated.
Details for which NRI should be very particular about :
- In India, the 1st Account holder is to considered as the owner of a bank account and for other financial assets.
- The 2nd & 3rd holders are merely for E OR S purpose or for signing / operating the bank account.
- Do not route the transactions of 2nd / 3rd holder in the same account.
- Open separate account for all persons having financial transactions in India.
- Refrain from opening multiple bank accounts of the same person.
Investment in India in a tax friendly manner : Interesting Case Study
Investment intended in India by NRI:
Case 1

Investment intended in India by NRI:
Case 2

Investment intended in India by NRI:
Improved version Case 1

Investment intended in India by NRI:
Improved version Case 2

- Scope of taxability in India
- Who is a Non Resident as per Income Tax Act ?
- Double Taxation Avoidance Agreement (DTAA)Double Taxation Avoidance Agreement (DTAA)
- Tax resident of more than one country
- Provisions & Formalities for returning NRI
- How to compute taxable income when, different financial year in India & abroad ?
- Reporting for foreign tax compliance
- Who should file Income Tax Return (ITR) in India?
- Some important aspects of Income Tax for NRI Representative Assessee – Agent of a Non Resident PAN Card & NRI
- Penalty for various contraventions by NRI under Income Tax Act
- Overview of FATCA & FBAR
- Overview of CRS
- Tax Planning for NRI in India
- Benefits of faceless operations of Indian Income Tax Department
- Streamlined Filing Compliance Procedures (SFCP)
- Investment in India in a tax friendly manner : Interesting Case Study