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Residential Status for Indian Residents Working Abroad: A Guide to Income Tax Compliance


A colorful illustration depicting a person working abroad, symbolizing the topic of Indian residents working overseas
Illustration of a person working abroad

Are you an Indian resident who has left the country for employment abroad? It's crucial to determine your residential status for income tax purposes to ensure compliance with Indian tax laws. In this article, we will walk you through the process of determining your residential status and the necessary steps to report your income correctly while filing your Income Tax Return (ITR).


Understanding Residential Status

As per the Income Tax Act, 1961, an individual's residential status is classified into two main categories: resident and non-resident.

  • Resident: If you are present in India for 182 days or more during the relevant previous year, you will be classified as a resident for income tax purposes.

  • Non-Resident: If you do not fulfill the condition of being present in India for 182 days or more during the relevant previous year, you will be considered a non-resident.

Reporting Income as a Non-Resident


As a non-resident, when filing your ITR, you must report only the salary or other income earned during the period you were in India for that particular year when you left India for employment abroad. This means you are not required to report income earned outside India during that period.


Relevant Sections from the Income Tax Act and Rules

To gain a better understanding of the residential status determination and income reporting, the following sections from the Income Tax Act, 1961, and Income Tax Rules, 1962 are relevant:

  1. Section 6: Residential status determination

  2. Section 5(2): Scope of total income for non-residents

  3. Section 9: Income deemed to accrue or arise in India

  4. Section 10(14): Exemptions on income

  5. Rule 114F to Rule 114H: Regulations regarding FATCA and CRS reporting requirements

Circulars issued by the Income Tax Department also provide important clarifications. One such circular to refer to is Circular No. 16/2015 dated 6th October 2015, which discusses the non-applicability of Rule 9A of the Income Tax Rules, 1962 in the case of abandoned film production.


Example Scenario


Let's consider an example to illustrate the residential status determination and income reporting process. Suppose you left India for employment abroad on August 1, 2020, and returned on February 1, 2021. In this case, your residential status for the previous year (April 1, 2020, to March 31, 2021) would be non-resident as you were present in India for less than 182 days. Therefore, while filing your ITR for that year, you should report only the salary or other income earned during the period you were in India (April 1, 2020, to July 31, 2020).


Filing the Income Tax Return (ITR) as a Non-Resident


When filing your ITR as a non-resident, it's crucial to select the correct ITR form applicable to non-resident taxpayers. Provide all relevant information about your income earned in India and any tax deducted at source on such income. Additionally, comply with any additional reporting requirements, such as Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS), if applicable.


Conclusion


In conclusion, understanding your residential status and reporting your income correctly while filing your ITR is crucial for Indian residents working abroad. By following the guidelines outlined in this article and seeking professional assistance, you can ensure compliance with Indian tax laws and avoid any legal or tax-related complications.



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Aug 28, 2023
Rated 5 out of 5 stars.

Really Informative

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