• Indian Taxation is based on the concept of "RESIDENCE" of the individual.

  • The period of stay in India during each previous year (1st April to 31st March) is the decisive factor in determining the residential status of a person.
Basic Conditions :
  1. He / She is in India for 182 days or more during the previous year OR
  2. He / She is in India for 60 days or more during the previous year and 365 days or more during the FOUR years prior to the previous year.
Exceptions to condition 2 above-
  • A citizen who leaves India in any year for employment, is not treated as resident in that year unless he/she has been in India for 182 days or more.
  • A citizen or a person of Indian origin, who has gone abroad and comes back to India on a visit, is not treated as a resident in that year, unless he/she has been in India for 182 days or more.
Additional Conditions :
  1. Resident in India in at least 9 out of the 10 previous years AND
  2. Resident in India for 730 days or more (i.e. 2 years or more) during the SEVEN previous years prior to the previous year
NON-RESIDENT

    An individual who does not satisfy any of the Basic conditions (1 or 2) stated above is treated as Non-Resident under Indian tax laws.

Tax Liability -

    Only income earned in India only is taxable.

RESIDENT and ORDINARILY RESIDENT

    An individual satisfying either of the Basic Conditions (1 or 2) and both the Additional Conditions (1 & 2).
Tax Liability -
    World Income is taxable. However, it is subject to double taxation avoidance agreement if any, entered into between India and the country where such income is earned.

RESIDENT BUT NOT ORDINARILY RESIDENT

    An individual satisfying either of the Basic Conditions but not both the Additional Conditions (1 AND 2).

Tax Liability -

    Income earned in India and Foreign income from business/profession set up in India, is taxable.


OCBs

    Overseas Corporate Bodies (OCBs) are bodies predominantly owned by individuals of Indian nationality or origin resident outside India and include overseas companies, partnership firms, societies and other corporate bodies which are owned, directly or indirectly, to the extent to atleast 60 per cent by individuals of Indian nationality or origin resident outside India as also overseas trust in which atleast 60 per cent of the beneficial interest is irrevocably held by such persons. Such ownership interest should be actually held by them and not in the capacity as nominees.

    The various facilities granted to NRIs are also available with certain exceptions to OCBs as long as the ownership / beneficial interest held in them by NRIs continues to be atleast 60%.

    In order to establish that the ownership / beneficial interest in any OCB held by NRIs is not less than 60%, the concerned body / trust is required to furnish a certificate from an overseas auditor / chartered accountant / certified public accountant in form OAC where the ownership / beneficial interest is directly held by NRIs and further that such ownership interest is actually held by them and not in the capacity as nominees.

    OCB - the clarification about OAC/OAC1
    Overseas Corporate Bodies having share holders belonging to one family or owned by share holders closely related to each other need not submit certificate in the form OAC/OAC1 on yearly basis. A simple certificate from the Managing Director/CEO of the Overseas Corporate Bodies to the effect that there is no change in the sharholding pattern since the submission of the last certificate would be sufficient.
DEAR NRI, ALWAYS KEEP IN MIND ....
    At times, determining the residential status for individual NRI's under various statutes becomes complicated and it would be possible to interpret the status of an individual is "Resident" under one law and Non-Resident under another Act. A few instances are cited for your information.


A. You should be "Non-Resident under Foreign Exchange Regulation Act
  1. To claim complete tax exemption in respect of deposits under NRE and FCNR schemes.
  2. To claim exemptions from Gift tax in respect of gifts out of balances in NRE/FCNR accounts.
  3. To claim one-time exemption in respect of Gift from NRNR account.


B. You should be "Non-Resident as per Income Tax laws
  1. To claim tax exemption in case of NRNR deposits, Units, National Savings Certificates and other notified Government Securities and bonds.
  2. To avail tax rate concessions on income and long term Capital Gains on specified assets purchased out of foreign exchange.
  3. To get exemption from Gift Tax in respect of Gifts of foreign exchange assets, located outside India, by NRI.
  4. To get exemption from Gift tax in respect of Gifts of foreign exchange assets to their relatives in India.