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NRI / Foreign Income Tax Guide
Complete NRI/Foreign Income Tax Guide explaining various tax residency statuses such as NRI, ROR, RNOR, tie-breaker rules, various examples of income that are deemed to be a foreign income and its taxability. Learn more.
This document covers
- Non-resident Indian
- Know your Tax Residency Status
- ROR or RNOR
- Incomes that are deemed to be received in India
- Incomes that are deemed to accrue or arise in India
- Country / Tax treaty specific Tax rates, Interest, Penalty
- Tie-Breaker rules for determining Residency Status
1. Non-resident Indian
'Non-resident Indian' is an individual who is a citizen of India or a person of Indian origin and who is not a resident of India.
An individual is said to be non-resident in India if the taxpayer is not a resident in India and an individual is deemed to be resident in India in any previous year if the taxpayer satisfies any of the following conditions:
- If the taxpayer is in India for a period of 182 days or more during the previous year; or
- The taxpayer is in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year.
However, condition No. 2 does not apply where an individual being a citizen of India or a person of Indian origin, who being outside India, comes on a visit to India during the previous year.
A person shall be deemed to be of Indian origin if the taxpayer, or either of his parents or any of taxpayer grand-parents, was born in undivided India.
2. Know your Tax Residency Status
Tax Residency Status Calculator
3. Resident and Ordinarily Resident (ROR) or Resident but not Ordinarily Resident (RNOR)
A resident individual will be treated as resident and ordinarily resident in India during the year if the taxpayer satisfies both the following conditions:
- The taxpayer is resident in India for at least 2 years out of 10 years immediately preceding the relevant year.
- Taxpayer stays in India is for 730 days or more during 7 years immediately preceding the relevant year.
A resident individual who does not satisfy any of the above-mentioned conditions or satisfies only one of the above-mentioned conditions will be treated as Resident but Not Ordinarily Resident.
- If the individual satisfies any one or both the conditions specified at step 1 and satisfy none or one condition specified at step 2, then he will become resident but not ordinarily resident in India.
- If the individual satisfies none of the conditions specified at step one, then he will become non-resident.
| Nature of income | Residency status | ||
|---|---|---|---|
| ROR* | RNOR* | NR* | |
| Income which accrues or arises in India | Taxed | Taxed | Taxed |
| Income which is deemed to accrue or arise in India | Taxed | Taxed | Taxed |
| Income which is received in India | Taxed | Taxed | Taxed |
| Income which is deemed to be received in India | Taxed | Taxed | Taxed |
| Income accruing outside India from a business controlled from India or from a profession set up in India | Taxed | Taxed | Not taxed |
| Income other than above (i.e., income which has no relation with India) | Taxed | Not taxed | Not taxed |
* ROR means resident and ordinarily resident.RNOR means resident but not ordinarily resident.NR means non-resident.
4. Incomes that are deemed to be received in India
- Interest credited to recognised provident fund account of an employee in excess of 9.5% per annum.
- Employer’s contribution to recognised provident fund in excess of 12%.
- Transferred balance in case of reorganisation of unrecognised provident fund.
- Contribution by the Central Government or other employer to the account of the employee in case of notified pension scheme referred to in section 80CCD.
5. Incomes that are deemed to accrue or arise in India
- Capital gain arising on transfer of property situated in India.
- Income from a business connection in India.
- Income from salary in respect of services rendered in India.
- Salary received by an Indian national from Government of India in respect of service rendered outside India. However, allowances and perquisites are exempt in this case.
- Income from any property, asset or other source of income located in India.
- Dividend paid by an Indian company.
- Interest received from Government of India.
- Interest received from a resident is treated as income deemed to accrue or arise in India in all cases, except where such interest is earned in respect of funds borrowed by the resident and is used for carrying on business/profession outside India or is in respect of funds borrowed by the resident and is used for earning income from any source outside India.
- Interest received from a non-resident is treated as income deemed to accrue or arise in India if such interest is earned in respect of funds borrowed by the non- resident for carrying on any business/profession in India.
- Royalty / fees for technical services received from Government of India.
- Royalty / fees for technical services received from a resident is treated as income deemed to accrue or arise in India in all cases, except where such royalty/fees relates to the business/profession/other source of income carried on by the payer outside India.
- Royalty / fees for technical services received from non-resident is treated as income deemed to accrue or arise in India if such royalty/fees are received for business/profession/other source of income carried on by the payer in India.
In case of non-resident, being a person engaged in the business of banking any interest payable by the permanent establishment in India of such non-resident to the head- office or any permanent establishment or any other part of such non-resident outside India shall be deemed to accrue or arise in India.
For Other information related NRI Income Tax, please refer: Foreign income FAQs
6. Country / Tax treaty specific Tax rates, Interest, Penalty
| Country | Dividend (not being covered under Section 115-O) | Interest | Royalty | Fee for Technical Services | ||||
|---|---|---|---|---|---|---|---|---|
| Tax Treaty | IT Act (Note 6) | Tax Treaty | IT Act (Note 7) | Tax Treaty | IT Act (Note 4) | Tax Treaty | IT Act (Note 4) | |
| United States | a) 15%, if at least 10% of the voting stock of the company paying the dividend is held by the recipient company; b) 25% in other cases | 20%/10% | a) 10% if loan is granted by a bank/similar institute including insurance company; b) 15% for others | 20%/10%/5% | 10%/15% [Note 2] | 10% | 10%/15% [Note 2] | 10% |
| United Kingdom | 15%/10% (Note 5) | 20%/10% | a) 10%, if interest is paid to a bank b) 15%, in other cases [Note1] | 20%/10%/5% | 10%/15% [Note 2] | 10% | 10%/15% [Note 2] | 10% |
| Russian Federation | 10% | 20%/10% | 10% [Note1] | 20%/10%/5% | 10% | 10% | 10% | 10% |
| Canada | a) 15%,if At least 10% Of the voting powers in the company, paying the dividends, is controlled by Recipient company; b) 25%, in other cases | 20%/10% | 15% [Note1] | 20%/10%/5% | 10%-15% | 10% | 10%-15% | 10% |
| France | 10% | 20%/10% | 10% [Note1] | 20%/10%/5% | 10% | 10% | 10% | 10% |
| Germany | 10% | 20%/10% | 10% [Note1] | 20%/10%/5% | 10% | 10% | 10% | 10% |
| Japan | 10% | 20%/10% | 10% [Note1] | 20%/10%/5% | 10% | 10% | 10% | 10% |
| Malaysia | 5% | 20%/10% | 10% [Note1] | 20%/10%/5% | 10% | 10% | 10% | 10% |
| Singapore | a) 10%, if at least 25% of the share of the company paying the dividend is held by the recipient company; b) 15%, in other cases | 20%/10% | a) 10%, if loan is granted by a bank or similar institute including an insurance company; b) 15%, in all other cases | 20%/10%/5% | 10% | 10% | 10% | 10% |
| Sweden | 10% | 20%/10% | 10% [Note1] | 20%/10%/5% | 10% | 10% | 10% | 10% |
| Swiss | 10% | 20%/10% | 10% [Note1] | 20%/10%/5% | 10% | 10% | 10% | 10% |
| United Arab Emirates | 10% | 20%/10% | a) 5% if loan is granted by a bank/similar financial institute; b) 12.5%, in other cases | 20%/10%/5% | 10% | 10% | No separate provision | 10% |
| New Zealand | 15% | 20%/10% | 10% [Note1] | 20%/10%/5% | 10% | 10% | 10% | 10% |
- Dividend/Interest earned by the Government and certain specified institutions, inter-alia, Reserve Bank of India is exempt from taxation in the country of source
- Royalties and fees for technical services would be taxable in the country of source at the rates prescribed for different categories,
- Royalties and fees for technical services would be taxable in the country of source at the following rates:
- 10 per cent in case of royalties relating to the payments for the use of, or the right to use, industrial, commercial or scientific equipment
- 20 per cent in case of fees for technical services and other royalties
From Assessment Year 2016-17, Royalty and fees for technical service received by a foreign company or a non- resident non-corporate tax payer from government or an Indian concern shall be taxed at the rate of 10% if agreement is made at any time after 31 March 1976.
From Assessment Year 2017-18, any income of a person resident in India by way of royalty in respect of a patent developed and registered in India shall be taxable at the rate of 10%
15% of the gross amount of the dividends where those dividends are paid out of income (including gains) derived directly or indirectly from immovable property by an investment vehicle which distributes most of this income annually and whose income from such immovable property is exempted from tax
10% of the gross amount of the dividends, in all other cases
Dividend:
Rate of tax shall be 10% on income from Global Depository Receipts u/s 115AC (1)(b)
Rate of tax shall be 20% u/s 115A on dividend received by a foreign company or a non-resident non-corporate tax payer
Rate of tax shall be 20% u/s 115AD on dividend received by a foreign institutional investor.
From Assessment Year 2017-18, dividend in excess of Rs.10 lakh shall be chargeable to tax in the case of an individual, HUF or a firm who is resident in India, at the rate of 10% as per section 115BBDA.
From Assessment Year 2018-19, dividend in excess of Rs.10 lakh shall be chargeable to tax in the case of person who is resident in India other than:
- A domestic company
- A fund or institution or trust or any university or other educational institution or any hospital or other medical institution
- A trust or institution registered u/s 12AA. At the rate of 10% as per section 115BBDA
Interest
- Rate of tax shall be 20% u/s 115A on interest received by a foreign company or a non-resident non- corporate tax payer from Government or an Indian concern on moneys borrowed or debt incurred by Government or the Indian concern in foreign currency.
- Rate of tax shall be 10% u/s 115AC on income from bonds of an Indian company issued in accordance with such scheme as the Central Government may, by notification in the Official Gazette, specify in this behalf, or on bonds of a public sector company sold by the Government, and purchased by non-resident in foreign currency
- Rate of tax shall be 5% in following cases:
- Interest received from an infrastructure debt fund
- Interest received from an Indian company
- Interest of the nature and extent
- Distributed income being interest, 194LBA is inserted by the Finance
7. Tie-Breaker rules for determining Residency Status
There is a situation where the individual is resident of 2 countries , then his tax residency status shall be determined in the following manner
- Permanent Home : The individual shall be deemed to be resident of a country where he has a permanent home available to him. If the taxpayer has a permanent home in both countries, we need to check the personal and economic relations.
- Personal and Economic relations (centre of vital interests) : If the permanent home is available to the taxpayer in both countries, then check for the personal and economic relations. The taxpayer shall be deemed to be resident of the country where he has closer personal and economic relations.
- Habitual Abode : If the taxpayer don't have permanent home and his personal and economic relations cannot be determined, we need to check for habitual abode. He shall be deemed to be resident of the country where has habitual abode
- Nationality : If the taxpayer don't have permanent home, his personal and economic relations cannot be determined and he don't have habitual abode in either of the countries, he shall be deemed to be resident of the country where he is a national