Concept of taxability for Foreign Nationals in India

The foreign nationals are taxed in India as per their residential status. Various norms are made in the income tax act for taxability of foreign nationals in India. They are :

  • The expatriates who becomes 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 benefit of DTAA.
  • Those individuals who are Non Resident Indians(NRI) or Resident 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 for their migration is service, education, employment, residence and so on.

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 by them in India is taxable by the Indian taxation 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 minimum 9 years out of the last 10 years of taxation.
  • 7 years prior to the taxation year, the individual has resided within India for a duration of maximum 729 days or less.

These type of foreign nationals are liable to pay tax on total income that is earned within India. They deemed to be a resident of India and have to pay tax for the total of his or her income earned within India, if they fulfil 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 residing in the country for 365 or more days in the previous 4 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 as Resident and Ordinary Residents . All the income which is earned by them 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 purpose are as follows:

Employment income : This includes -

  • Salaries
  • Wages
  • Cash compensation
  • Allowances
  • Reimbursements
  • Perks like company car 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.

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 the bank statements that includes all transactions made in the taxation year. These transactions consist of all the investments, expenditure 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 organisations. 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 must be given that is sold within India which has capital gains that are taxable as tax on the income received from the sale. The details regarding the sale of any asset or property is to be presented for filing income tax return.

Investment Proofs

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


Meaning of Double Tax Avoidance Agreement (DTAA)

For foreign nationals there is a special benefit called as Double Tax Avoidance Agreement (DTAA). This agreement is done between both the countries which allow the individual to avoid paying any income tax in either of the countries. For incomes that can be taxable in both the country that is India and the other country, the taxpayer can take the help of 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, 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 individual for taxation purpose 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 as foreign national.


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

Yes, all the foreign nationals are liable to pay tax in india under the income tax act, 1961. But the provisions for their taxation are different from that of a Indian citizen.


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

Yes, foreign nationals are liable to pay taxes on capital gains when they sell any capital asset within India.


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 various rules and regulations stated in taxation laws of India.


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.