Tax Residential Status

Section 6 (1) of the Income Tax Act, 1961, lays down two sets of parameters to determine if a particular individual is Indian citizen or not. If the person meets any of the following two criteria, he/she will be deemed a resident of the country. Also, as per income tax laws residential status must be checked for tax purpose, which is determined by number of days stay in India.

You need to be well-aware of your residency status for tax purposes. You need to find out whether you are:

An individual will be considered an Indian resident for a financial year if he/she is in the country for 6 months (182 days in fact) or more in a financial year and as such you need to be careful about tax implication on salary earned outside India.

Or

An individual is in India for more than two months (60 days) in a financial year or lived for a whole year (365 days) or more during the last four years preceding immediately the current year

How are You Taxed When You are a resident with Global Income?

Tax incidence in India

The Income Tax law stipulates that if you are a resident of India, income earned anywhere in the world will be taxed in the country. Moreover, you are required by law to declare all the assets, bank accounts and sundry other financial interest that you may be having in a foreign country to declare it in your tax return filings. Income tax return filled in India must include the income earned from these sources.

If the duration of stay in India was less than 182 days during the financial year he/she will be considered as 'tax resident' and therefore all his/her global incomes as well as other incomes are taxable but if his/her global income is also taxed in that country then the role of tax treatiesDouble Taxation Avoidance Agreements (DTAA) comes into effect which ensures that If an individual is a tax resident of one country but has a source of income from another country, the same income cannot be taxed twice.

Under DTAA there are two ways to claim tax relief (i)Exemption Method- In this the taxpayer is taxed in only one country and exempted in another, (ii) Tax credit-In this method income is taxed in both the countries later on tax relief is claimed in country of residence. India has entered into DTAA with many countries Including USA, UK etc but still there are countries without any tax treaties and hence there is no relief in tax.