Income Tax for Indian Residents Working Abroad

Indians from time immemorial have been a very enterprising and adventures tribe. They have always tried to find opportunities to seek employment suiting to their skill sets in far off lands. It is well known to us that one of our major foreign exchange earnings are the income remittances from abroad. In fact this forms a very large part of our foreign exchange reserves.

Indian Workers Abroad and their annual remittances

In fact As per a Global Consultancy namely M/s. Manpower Borderless Workforce, India has emerged as the third most popular country for sourcing foreign talent in the Manpower Borderless Workforce Survey, and there are totally 2.2 Million Indians working in various countries of the world, and their total remittances to India is USD 28 Billion Per Annum. An astounding Amount really!

Now let us see how the Indian Income Tax Laws treats the remittances from these Indians who are working abroad.

An individual is taxed based on his residential status in India. The residential status, in turn, is determined based on the physical stay of an individual in the relevant financial year (tax year) as well as preceding ten tax years. This is particularly relevant in respect of Indians working overseas or having income outside India.

Residential Status

Broadly, and individual could be a resident or a non-resident in a particular tax year. Once an individual’s residential status is determined to be a resident, it is further examined whether he is an ordinary resident or not an ordinary resident in India.

Physical Stay is the Basic test

 An individual is said to be a resident in India if he fulfils any of the following two conditions. First, if he is present in India for a period of 182 days or more in that tax year OR second, if he is present in India for a period of 60 days or more during the relevant tax year and at least 365 days or more during the four preceding tax years. In case an individual does not satisfy any of the above two basic conditions, then he is said to be a non-resident.

Non Resident (NRI)

In the case of a citizen of India, who leaves India in any tax year for the purposes of employment outside India, the above said period of 60 days is substituted by 182 days. This is particularly beneficial for individuals going and working overseas in a particular tax year. Similarly, in the case of a citizen of India or a person of Indian origin who being outside India, comes on a visit to India in any tax year, the above said period of 60 days is substituted by 182 days. This is helpful for non-resident Indians who visit India for family or other purposes.

Resident But Not Ordinary Resident (RNOR)

In the case of an individual who is a resident, it is to be further determined whether he is an ordinary resident or not an ordinary resident. A person is said to be not ordinary resident if he satisfies any of the following additional conditions. First, if he has been a non-resident in India in nine out of the 10 previous years preceding the relevant tax year OR second, if he has been in India for 729 days or less in the seven tax years preceding the relevant tax year. If none of the above two conditions are satisfied, then a person is said to be an ordinary resident.

Provisions Under Indian Income Tax

In case an individual is a non-resident, then only income received / deemed to be received or accrued / deemed to be accrued in India is taxable in India. Thus, broadly speaking, his overseas income would not be taxable in India, provided it is first received outside India.

Income Tax Clearance Certificate

An expatriate before leaving the territory of India is required to obtain a tax clearance certificate from the person’s respective Income Tax Circle Officer stating that he does not have any outstanding tax liability. Such a certificate is necessary in case the continuous presence in India exceeds 120 days. An application is to be made in a prescribed form to the Income Tax Authority having jurisdiction for assessment of the expatriate to grant a tax clearance certificate. This is to be exchanged for final tax clearance certificate from the foreign section of the Income Tax Department. Tax Clearance certificate is valid for a period of 1 month from the date of issue and is necessary to get a confirmed booking from an airline or travel agency and may be required to be produced before the customs authorities at the airport. This is of utmost importance for the purpose of Income Tax, and one is likely to forget this aspect while taking up a job abroad, as she /he will be fully occupied with various aspects connected to the job, living abroad, health care, accommodation and many other such aspects.

DTAA

India has agreed into DTAA or Double Taxation Avoidance Agreements with 65 Countries of the world. The list of all the countries with which India has DTAA is provided in the Separate Chart at the end of this article. It is also important to examine the conditions laid out under the respective Double Taxation Avoidance Agreements (DTAAs), also known as treaties, which India has entered into with these 65 countries to finally determine the taxability or otherwise for any particular source of income. Generally, the DTAAs provide for taxability of income in one country. Else, if the income is subject to tax in both the countries, then credit could be claimed for tax paid in the other country, subject to the prescribed conditions.

Relevant Sections

Indian Income Tax Laws for Indians working Abroad – All incidences of Indians working abroad under various capacities across the world are comprehensively covered under these sections (Sec. [10(5B)], [Sec. 10(6) (ii)], [Sec, 10(6) (vi)], [Sec. 10(6) (viii)], [Sec. 10(6) (xi)], [Sec. 10(8), 10(8A), 10(8B) and 10(9)].

List of Countries with which India has DTAA

Australia	Czechoslovakia	Israel	Malta	Philippines	Sweden	United States
Austria	Czech Republic	Italy	Mauritius	Poland	Switzerland	Uzbekistan
Bangladesh	Denmark	Japan	Mongolia	Portugal	Syria	Vietnam
Belarus	Egypt	Jordan	Morocco	Qatar	Tanzania	Zambia
Belgium	Finland	Kazakhstan	Namibia	Romania	Thailand	Non treaty countries
Brazil	France	Kenya	Nepal	Russian Federation	Trinidad and Tobago
Bulgaria	Germany	Korea	Netherlands	Singapore	Turkey
Canada	Greece	Kyrgyzstan	New Zealand	South Africa	Turkmenistan
China	Hungary	Libya	Norway	Spain	United Arab Emirates
Cyprus	Indonesia	Malaysia	Oman	Sri Lanka	United Kingdom