NRI returning to India? How to calculate your tax

The grass is not really greener on the other side as many Indians abroad are figuring it out the hard way. Faced with a gloomy economy and career prospects, some are packing their bags and heading back to test the job market.

Though finding a job would be easier in India, especially for those with good degrees and employment background, figuring out the tax liability — especially in the initial years — may be a daunting task. If you are returning to India for employment, there are some tax issues one has to consider before taking the final decision.

This is crucial because the taxability of overseas income (such as rental income from property outside India, capital gains, bank interest, dividends, etc.) for returning Indians largely depends on their residential status in India.  Planning the timing of one’s return is very important.

RESIDENTIAL STATUS
Residency rules play an important role in determining the income that is taxable in India. Indian residency is triggered in either of the following situations:

1. The individual is in India in that financial year for 182 or more days; or

2. The individual is in India in that financial year for 60 or more days and 365 days or more in the four financial years prior to that financial year.

If neither of the above conditions is satisfied, the individual would be treated as a Non-Resident (NR). Satisfying any of the above two conditions would qualify the individual as a resident. Indian tax laws provide a relief for a category of individuals who are ‘Not Ordinarily Resident’ (NOR).

One can become a NOR either if his/her stay in India in the 7 financial years immediately preceding that financial year is less than 729 days or if he/she was a Non-Resident for 9 of the 10 financial years immediately preceding that financial year. A Resident other than a NOR is generally referred to as an Ordinary Resident (‘ROR’).

In case an Indian citizen or a PIO visits India in any tax year, the above mentioned 60 days shall be replaced by 182 days. The proposed Direct Tax Code, however, does not give this preferential benefit to the NRIs or PIO visiting India.

SELLING YOUR PROPERTY ABROAD
As a returning Indian, try to sell your overseas property while you are still a NOR or NR. As a NOR or NR, if you sell any overseas assets and receive the sale proceeds outside India, you do not have to pay any taxes in India. If you need to buy a house in India out of the sale proceeds, you can first receive the sale proceeds in a foreign bank account and thereafter remit part or whole of the proceeds back to India without creating any Indian tax liability.

TAXABILITY AT A GLANCE
i. Income received or deemed to be received or accrues or arises in India during the previous year.

- ROR – Fully Taxable
- NOR/NR – Fully Taxable

ii. Income which accrues or arises outside India and received outside India in the previous year from any other source.

- ROR – Fully Taxable
- NOR/NR – Not Taxable

iii. Income which accrues or arises outside India and received outside India during the preceding previous years and remitted to India during the previous year.

- ROR – Not Taxable
- NOR/NR – Not Taxable