An NRI returning to India or an Indian citizen going overseas, you need to be aware that you must pay tax on your foreign earnings (earned outside India also known as global income) if you come before 1st February or leave after 28th September. In India, taxation depends upon an individual’s residential status. An Indian resident, who is an NRI for a financial year (from 1st April to 31st March), is not required to pay income tax on their global income. However, if his residential status is Resident but not an Ordinarily Resident (RNOR), then his global income is also taxable. In order to attain NRI status, you require staying more than 182 days outside India.
Note: The arrival and departure dates are also counted as stay in India.
Thus, if you somehow manage to do that by timing your arrival or departure, then you can save an adequate amount of tax by avoiding your foreign income to be taxed in India @ higher rate of 33%. Though those dates are a little bit adjustable that depend upon whether current year is a leap year or not and also depend upon whether you have spent less than 365 days in India in the preceding four years, but it gives an indication of how an NRI can prevent his foreign income from being taxed at a higher rate on India.
Things to remember about NRI taxation
If you are an NRI, then it is essential for you to be aware of how taxation on India works and also whether you need to file income tax returns or not.
1) Always remember the taxable period. The financial year in India starts on 1st April and ends on 31st March. A number of days stay in India during this period is counted to determine an individual’s residential status for the taxation purpose.
2) An Indian resident is considered as an NRI if he stays less than 182 days in India during a financial year from 1st April to 31st March and has not stayed for more than 60 days in the previous year or not in India for 365 days or more during the last four years before the previous year. The time limit of 60 days is extended as 182 days for those persons who leave India for employment outside India.
3) Always remember, the day of departure from India and day of arrival into India are counted as one day each, i.e. total of 2 days of stay in India. Dates stamped on person’s passport are usually considered as a proof of departure from and arrival into the country.
4) You can avoid tax on your global earning in the first year of leaving India for an Employment purpose, if you leave prior to 24th September, to attain NRI status during the financial year. Otherwise, your entire foreign income during the financial year (the year when you leave India) is taxable in India.
5) Similarly, you can save your foreign revenue from the tax in India if you are an NRI and returning to India, by going on or after 1st February (2nd February in case of a leap year) to keep your residential status as an NRI.
You also have benefited if you stay in India for the previous four years does not more than the 365 days. In that case, you can return to India as early as 2nd October (3rd October in case of a leap year) to maintain NRI status and to avoid tax on foreign income.
That’s all about how you can avoid income tax on your foreign earnings if you depart or arrive in India at the right time in a financial year. In both the cases, i.e. when you leave India after the 24th September or arrive after the 2nd February, you will remain non-resident (NRI) for that financial year (i.e. 1st April to 31st March) ensuring that your income earned outside India is non-taxable in India for said financial year. Moreover, you can also claim a tax rebate if you have already paid income tax on your foreign earnings in the country you are currently residing and you couldn’t avoid taxation on your global income.