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Income Tax Filing for Foreign Nationals

Updated on: 13 Feb, 2024 03:39 PM

Any individual who is residing and working in India but belongs to any other country will have to pay tax under the Income Tax Act 1961. However, the provisions for expatriates under the Income Tax Act are different. You will get complete knowledge of taxability for expats in this article.

All the income will be taxable under the Income Tax Act of 1961. All the income means the income from any source that is received within India is taxable according to Indian taxation rules. Even foreign nationals are liable to pay taxes on capital gains, if any, while selling any capital asset in India. The tax by the foreign nationals can be paid at the source as a tax deduction at the source and can be filed in return to get a deduction against it.

Concept of Taxability for Foreign Nationals in India

Foreign nationals are taxed in India as per their residential status. Various norms are made in the Income Tax Act for the taxability of foreign nationals in India. They are :

The expatriates who become residents of India are liable to pay taxes on the income earned by them from all over the world. The incomes from their own country will be considered, though this income may have been earned or received outside – it shall be taxed in India. In case this income is also taxable in another country, the taxpayer can take advantage of DTAA.

Those individuals who are non-resident Indians(NRI) or residents but not ordinarily resident (RNOR) are liable to pay income tax on all the incomes acquired within India.


Residential status of foreign nationals and their taxation

There are three categories of foreign nationals who are liable to pay taxes in India based on their residential status:

Non-Resident

All the expatriates who moved from India to another country for a limited period of time, that is, for a period of six months or more, are Non-residents. The major purpose of their migration is service, education, employment, residence, and so on.

The following conditions must be fulfilled by them to be a Non-Resident Indian:

  • The individual must have resided in India for less than 182 days in the taxation year.
  • He or she should have resided in India for less than 365 days in the period of 4 years prior to the taxation year.

For this category of foreign nationals, the total income earned in India is taxable by Indian tax laws.

Resident But Not Ordinarily Resident (RNOR)

A Resident But Not Ordinarily Resident (RNOR) is considered after fulfilling two major conditions. These are as follows:

  • The individual must be residing within India for a minimum of 9 years out of the last ten years of taxation.
  • Seven years prior to the taxation year, the individual has resided within India for a duration of a maximum of 729 days or less.

These types of foreign nationals are liable to pay tax on the total income that is earned within India. They are deemed to be a resident of India and have to pay tax for the total of their income earned within India if they fulfill the following conditions according to the income tax law:

  • They have to reside in India for 182 days or more in the taxation year.
  • If the individual is residing in India for 60 to 182 days in the taxation year and has been living in the country for 365 or more days in the four years prior to the taxation year.

Resident and Ordinary Resident

Those individuals who do not meet the requirements that are specified to be Resident but Not Ordinarily Resident (RNOR) are called Resident and Ordinary Residents. All the income they earn in a financial year from all over the world is taxable for these individuals.


Which incomes are Taxable for Expats?

All the incomes that are considered for any foreign nationals who are residing in India for taxation purposes are as follows:

Employment income: This includes -

  • Salaries
  • Wages
  • Cash compensation
  • Allowances
  • Reimbursements
  • Perks like company cars, along with a driver or employer paying tax on his or her behalf.

Non-Employment Income: This includes-

  • Income from investments made abroad but sent to a bank account in India.
  • Short-term or long-term capital gains from the sale of assets in India.
  • Payments of interest on infrastructure debt funds in India.
  • Royalties received from an Indian organization.

Deductions and Exemptions for Foreign National

Living in India? You can lower your tax burden! Foreign nationals can claim several deductions and exemptions under Section 80C (investments), Section 80D (medical insurance), and even housing allowances. Understanding these benefits and how to file your tax return helps you keep more of your hard-earned income.


Global Financial Transparency: How to Comply with FATCA and CRS

Transparency is your tax ally. Declare your foreign assets and income on your returns. FATCA and CRS are making global financial transparency the norm, so hiding these details isn't an option. Reporting them demonstrates responsibility and eases your tax journey. It's a win-win for you and the authorities.


Visa and income tax implications for foreign workers in India

Visa matters for taxes! Your employment visa could mean tax on all your earnings, while a business visa might just tax what you make within India. Knowing your visa's tax implications helps you plan, budget, and avoid surprises.


Tax deadlines for foreign nationals

Your visa isn't the only deadline to remember. Your visa type determines your tax residency, which in turn sets your ITR deadline. Missing it means saying hello to penalties and interest. Skip the stress and avoid an investigation - stay informed, file on time with professional help (if needed), and rest assured you're tax-compliant. Focus on work and life, and let the experts handle the deadlines.

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Documents Required by Foreign Nationals for Filing Income Tax Returns

Foreign nationals are also required to furnish various documents while filing their income tax returns in India. The documents they require are:

Form 16

This form is very important and given by the employer of the individual. This form includes all the relevant information related to the income of the individual and the deductions, if any, made from the income of the individual throughout the financial year.

Bank Statements

It is very important for foreign nationals to provide bank statements that include all transactions made in the taxation year. These transactions consist of all the investments, expenditures done, income accrued, and so on.

TDS Certificate

The Tax Deduction at Source (TDS) Certificate is also called Form 16A. This form is furnished by taxation organizations. It includes details related to the tax deducted at source (TDS) on any other income that is earned by the individual.

Details of Property

Information of any property or asset that is sold within India that has capital gains that are taxable as a tax on the income received from the sale must be given. The details regarding the sale of any asset or property are to be presented for filing an income tax return.

Investment Proofs

Any investment-related information of the individual that is not given in Form 16 is required as evidence for the same.


Meaning of Double Tax Avoidance Agreement (DTAA)

For foreign nationals, there is a special benefit called a Double Tax Avoidance Agreement (DTAA). This agreement is made between both countries, which allows the individual to avoid paying any income tax in either of the countries. For incomes that can be taxable in both the country, India and the other country, the taxpayer can take the help of a Double Tax Avoidance Agreement (DTAA) and avoid paying tax in one of the countries. He or she will only be liable to pay tax for that income only in one country.


Conclusion

Any foreign national who is residing in India but is not a citizen of India is also liable to pay tax according to the Income Tax Act of 1961. He or she will be taxed on all the income that is earned within India. There are various rules and regulations to find out the actual taxability of such individuals for taxation purposes in India.


Frequently Asked Questions

Q- Who are considered as foreign nationals?

Any individual who is residing and working in India but belongs to any other country is considered to be a foreign national.


Q- Are foreign nationals liable to pay tax in India?

Yes, all foreign nationals are liable to pay tax in India under the Income Tax Act of 1961. But the provisions for their taxation are different from that of an Indian citizen.


Q- Are foreign nationals liable to pay tax on capital gains in India?

Yes, foreign nationals are also required to file an income tax return in India by abiding by various rules and regulations stated in India's tax laws.


Q- Can a foreign national file an income tax return?

Yes, foreign nationals are also required to file an income tax return in India by abiding by various rules and regulations stated in India's tax laws.


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CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.