Difference Between Resident, Non-Resident And Not Ordinarily Resident
Posted on October 01 2020
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Non–resident Indian has been defined as an individual who is a citizen of India or a person of Indian origin, who is not a resident. A person is of Indian origin if he or either or his parents or any of his grandparents were born in undivided India. The Indian Income Tax has special provisions providing motivation in the form of reliefs and concessional tax rate and also simplifying the tax assessment procedure for the NRI’s and the PIO’s. These provisions play a major role in attracting investment by the Non-Nationals living abroad.
Income tax law has given the NRI a special status, besides the general provisions for computation of long term capital gains and tax liability thereon which is there in the section 48 and section 112, chapter XII-A (comprising of sections 115C to 115-I), contains special provisions relating to certain incomes of the non-resident Indians (NRIs). Section 115AC makes provision for tax on the income from either bonds or shares which have been purchased in foreign currency or capital gains arising from their transfer. Besides, the provisions of Section 115A have been extended to the non-residents, besides foreign companies, regarding tax on dividends, interest on foreign currency debts and income from the units of mutual funds.
In order to understand the wide concept of Taxation of the NRIs, we require to understand the difference between Resident, Non-Resident but not ordinarily resident.
Residents: As per section 6 of the IT Act, a person becomes resident in India only if he satisfies any of the following conditions.
1. Who stays in India for 182 days or more Or
2. Who stays in India for 60 days and 365 days in aggregate in the preceding 4 years
There are some exceptions granted for the Person of Indian Origin, Non Resident Indian, Indian Citizen who leaves India for employment purpose or as crew of a ship or who comes to a visit to India. In all these cases, if they stay in India in a year for 182 days only then he becomes resident.
Non- Resident: Those who are not the resident are called Non Resident.
Resident but not Ordinarily Resident (RONR):
Resident but not Ordinary Resident is defined under subsection 6 of Section 6 of the IT Act. A person is Non Ordinarily Resident if,
1. He was the Non-resident for 9 out of 10 previous years preceding the year when you want to know the status or
2. He stays for 729days or less during the seven preceding previous years.
Assessment of NRIs
A non-resident may be assessed to taxation in India either directly or through agents. Persons in India who may be treated as agent or a non-resident are:-
1. Employee or trustee of the non-resident;
2. Any person who has nay business connection with the non-resident;
3. Any person from or through whom the non-resident is in receipt of any income;
4. Any person who has attained a capital asset in India from the non-resident.
A broker in India who has independent dealings with a non-resident broker acting on the behalf of a non-resident principal is, therefore, not treated as an agent of the non-resident, if the transactions between the two brokers are carried on in the ordinary course of their business. Before any person is treated as an agent of non-resident, he is given an opportunity of being heard and any representation from him in the matter that he is considered.
Taxable income of NRI’s
As mentioned in Chapter – II, a person who is non-resident is subjected to tax on that income only which is earned by him in India. Income is earned in India if:
1. It is directly or indirectly received in India or
2. It accumulates in India or the law interprets it as having accumulated in India.
The following are few of the instances when the law interprets and income to have accumulated in India:
1. Income from business arising through any business connection in India
2. Income from property, if such property is situated in India;
3. Income from any asset or source, if such asset or source is in India;
4. Income from salaries, if the services are rendered in India.
In such cases salary for rest period or leave period will be regarded as earned in India, if it forms part of the service contract:
1. Income from the salaries payable by the Government to a Citizen of India even though the services are accomplished outside India;
2. Income from dividend paid by an Indian company even if the same is paid outside India;
3. Income by way of interest payable by the government or by any other person in certain circumstances;
4. Income by way of authority, if payable by the Government or by any other person in certain circumstances;
The following income, even though appearing to be arising in India, is interpreted as not arising in India:-
1. If a non-resident running a news agency or publishing newspapers, magazines etc earns income from the activities confined to the collection of news and views in India for the transmission outside India, such income is not considered to have arisen in India.
2. In the case of a non-resident, no income shall be considered to have arisen in India, if it arises from the operations which are confined to the shooting of any cinematography film.
This applies to the following types of non-residents:
1. Individual who is not a citizen of India; or
2. Firm which does not have any partner and who is a citizen of India or who is resident in India; or
3. Company which does not have any shareholder and who is a resident in India.
Tax Assist is a professional income tax consultancy in India for both corporate houses and individual tax payers; the latter comprising Salaried Individuals, Seafarers, Professionals and Non Resident Indians.
With the help of Tax Assist and its team of income tax professionals, taxpayers can minimize their Income Tax liability, maximize their net income and create opportunities to save for current and future needs while maintaining proper accounting standards and income tax returns which are compliant with the Law.
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