In my earlier post, I explained about the Indian tax residency rules so that you can clearly decide your residential status in India – you can read it here: How to find your residential status as per Income Tax Act (I suggest you to read it prior to reading this post)
As I have also written in my recent post, if a person has a foreign income, the greater the person can increase his NR/RNOR period in India, the greater the chances of reducing India tax liability in India: Returning NRI having foreign income/assets should make full use of RNOR phase
Lot of NRIs and globe trotters who return with substantial investments outside India have this question – is there a possibility to somehow plan my days of stay in India to escape/reduce my India taxes on foreign income?
The answer is: YES.
In this post, and based on my personal experience of with helping NRIs to make some changes to their itinerary from a tax perspective, I will be explaining some perfectly legal strategies which you can also employ and save a good amount of tax in India.
Before we proceed, a few points
- The strategies explained here should not be blindly implemented, and needs to be considered carefully w.r.t. citizenship, tax rules in host country, place of origin of income, DTAA provisions etc. Consult a professional with detailed facts and then take a decision.
- These strategies are mostly relevant when you have foreign income (say a salary income from foreign employer for NRI returning to India) in that particular previous year. Indian income is anyways taxable irrespective of residential status so you cannot do much there.
Scenario # 1: NRI returning permanently to India
For an NRI who is returning permanently to India in a previous year, he needs to be careful to ensure that the no. of days stay in India for that financial year does not make him a “Resident and Ordinarily Resident”
This is a real life example of an NRI who returned from USA on September 10, 2016. As a result, his number of days in India for FY 2016-17 was 203 days. Also, because of his no. of days stay in previous 7 years exceeding 729 days, he fulfilled the condition of ROR.
Because of this, his USA salary (which was a substantial sum) also became taxable in India at his applicable tax slab of 30.90%. On examining Article 16 of India USA DTAA, he was not eligible for “exemption method” and had only the option of claiming a credit of USA tax (that too, only the federal income tax) from Indian tax. In such a scenario, there was a substantial additional tax liability for that person in India (some INR 20 lacs) as compared to a situation where he qualifies as RNOR and his USA salary income was not taxed in India.
In this situation, let us assume that the person negotiates with his employer in USA that he is released a bit later and he comes to India on October 2, 2017 – in such case, his India stay for the year would have been 181 days and as a result, his residential status would be RNOR. This would mean that his USA salary is not taxed in India. Effectively, just by delaying the return by some 22 days, he could have saved some 20 lacs of tax.
Your question may be, what would happen if his former employer does not yield to his request – in that case, he could have just taken a break and spent some time vacationing in USA itself – I’m sure a 20 day vacation or even a hotel stay in USA would have cost him much less than INR 20 lacs of additional tax he paid in India.
Point to remember for such returning NRI:
While returning to India from an overseas stint, try your best to time your return in such a way that you DO NOT become an ROR in the year of your return else all foreign incomes will also be taxable in India.
Scenario #2: NRI returning to India for a visit
This is a very common question amongst NRIs based out of India: how many days can we come and stay in India to retain our NRI status?
If you “come” for a “visit” to India in a financial year, the 60/365 day condition becomes redundant. You can stay In India up to 181 days (in one go or in split). However, please bear in mind that you need to actually arrive in India (from outside India) AND it has to be a “visit”
In some cases, I’ve seen a retired person is in India since start of the financial year and he leaves India and claims that he was on a visit in India – no, in that case, if stay is > = 60 days for that year and > = 365 days for previous 4 financial years, there is a chance that he may qualify as a ROR. Even if such person gives an argument that he left “for the purposes of employment” outside India, even that is not tenable as he is already retired and has nothing to show by way of a formal letter/e-mail from new employer/placement agencies that he was looking out for work.
Also, as regards “visit”, there was a recent case of Smita Anand  42 taxmann.com 366 (AAR – New Delhi) where person returned after resigning from job in China and claimed that 60/365 days condition should not be applied to her as she was on a visit. The ITAT rejected her contention and said that Return to India after resigning job abroad is not ‘visit to India’ under Expln (b) to sec. 6(1)(c)
The applicant argued that was so and the revenue submitted that she did not come to India only for a visit as her return to India is after resigning from her employment in China. The facts and circumstances show that the applicant did not come to India only for a visit. The applicant’s argument that the applicant’s employer card was valid upto 31-3-2012, the applicant was considerably exploring possibility of job outside India, the residential house property owned by the applicant jointly with her husband had been let out till June, 2011, the applicant visited her friends and relatives in different parts of India and also travelled different locations on holidays, the children of the applicant were staying abroad at the time when applicant came to India etc., are not sufficient to conclude that the applicant came to India on a visit only.
The applicant could very well resign even during the validity period of the employer’s card and that is what she has done. The activities mentioned by the applicant need not be necessarily proof of a visit, even a person staying permanently in India also does those activities. If a person returns to India after a long period of absence there is all the more reason he or she will like to go to visit relatives and friends in different places. Those activities are not necessarily indicators of a visit. When the applicant resigns from her employment in China, the reason for return to India does not seem to be only for a visit. In such circumstances it cannot be held that the applicant came to India only for a visit. On facts and circumstances of the case it is held that Explanation (b) to section 6(1)(c) is also not applicable in the applicant’s case.
This case makes it very clear that you need to ensure that a visit is actually a “visit”. If you’re returning after resigning from abroad, you fall within the 60/365 day rule also and MAY become an ROR. However, for a NRI coming for a visit to India (which may even include selling an old property in India), he can perfectly stay till 181 days and retain NR status.
Point to remember for NRI coming on visit to India:
Ensure that it is a “visit” only. If you find a work opportunity in India during your visit and you pick it, it will not be a visit. Retain sufficient documentation related to hotel stay etc. to later prove it to tax authorities, if required. Do not breach the 181 day limit. If you’re planning to return permanently in a few years, try to keep the visit days as less as possible, to possibly elongate RNOR status after your return.
Scenario # 3: Person going abroad for employment
For a person going abroad for employment in a year, the 60/365 days condition is not applicable. As regards “purpose of employment”, following important points to note are as follows:
- Even an overseas trip for business will qualify – it needs not be only for employment.
- It need not be that person should be unemployed – he may be employed and going overseas in a foreign subsidiary of Indian parent – that too will qualify.
In such cases, the person going abroad should try to structure his visit in such a way that he remains in India for a maximum of 181 days to qualify as a non-resident for the financial year. This will ensure that while his Indian salary is taxable in India, his foreign income is not. However, care should also be taken that foreign salary is not paid by Indian company, else it will be taxable in India. Ideally, it should be structured in such a way that the foreign subsidiary pays the salary and deduction of that salary is not claimed in India.
So, if a person has been in India for a financial year and gets an offer to work abroad, he should leave India latest by September 28. Any later than that, he will qualify as a ROR for that year in India, and accordingly will need to also offer foreign salary to tax in India.
Point to remember for Indians going abroad:
Plan your departure in such a way that you are in India for max. 181 days. Also, retain sufficient documentation for your abroad employment in your tax file like appointment letter etc. If you have not landed a job by the time of leaving, retain e-mail correspondence with placement agencies etc. to prove that you were leaving India for purpose of employment search.
Scenario # 4: Seafarers
In case of seafarers, they need to travel in international waters as per the assigned schedule.
If seafarer is an INDIAN citizen and leaves India as part of an INDIAN ship, then the 60/365 day condition becomes redundant. As long as such seafarer comes to India in a particular year, stays for 181 days or less and leaves again as part of the ship, his “Non-Resident” status is maintained.
Also, if seafarer is a NON INDIAN citizen and working on a FOREIGN ship, u/s his remuneration for services rendered in India is exempt provided his stay does not exceed 90 days.
Generally, seafarers arrange their work schedule with this rule in mind. However, in many cases, I’ve observed (especially for seafarers in contract based assignments) who return to India and due to some reason, breach the 181 day limit. I’ve also seen cases where a seafarer on return to India meets with an accident/illness and cannot resume work.
In such a situation, if a seafarer fails to leaves India at least once before end of the financial year (even say on March 31), his residential status can turn to ROR/RNOR depending upon his residential status in earlier years (refer chart below). If RNOR, no issues. But in case it is RNOR, then foreign income of such a seafarer will be taxable in India.
Point to remember for seafarers:
Take special care to ensure that you do not breach the 181 day limit of your stay in India, to qualify as a non-resident. Make sure you “leave” India every year by March 31. Preferably take credit of salary in a foreign bank account and then remit it to India.
Scenario # 5: Expat coming to India for a short assignment
For expats who plan to come to India for a short assignment, they need to note that their remuneration is exempt in India u/s 10(6)(vi) if following conditions are satisfied:
- He is an employee of foreign enterprise
- Services are rendered during stay in India
- Foreign enterprise is not engaged in any trade or business in India
- Stay of such expat does not exceed 90 days in that financial year
- Remuneration paid is not liable to be deducted from income of employer under the Income Tax Act
Generally, foreign employers keep the above in consideration before scheduling the expats for work in India. However, in case the expat is to stay for more than 90 days, care should be taken that the stay in India should in no case make him an ROR because if this happens, his entire salary (even that received for services rendered outside India) will become taxable in India.
In such situation, the expat can work for both foreign and India employer by moving out and returning back to India in such a way that he remains an RNOR and his foreign income is not taxed in India.
As regards Indian income though, the DTAA provisions will need to be checked. If income is taxable in India, foreign company will have to deduct TDS from salary and deposit into government account and give Form 16 to such expat – expat can claim the credit of TDS at the time of filing tax return in India. Effective July 1, 2017, an expat also needs Aadhaar for filing a tax return in India.
Point to remember for expats:
Try that your stay in a financial year is < 90 days. Else, check the DTAA provision which generally allow you to remain in India till 183 days without India tax liability. Also be mindful of TDS and advance tax issues.
Other points on planning residential status:
- Your passport along with the arrival/departure stamp is your only evidence of days spent in India. From my experience of handling scrutiny assessments for NRI clients, Income Tax Department invariably ask for your passport entries to ascertain your residential status. So, please preserve your passport carefully.
- On a conservative note, count date of arrival and departure into India as a day stayed in India
Hope the post has been of service to you. Please share your thoughts/feedback.