Residence standing differs in IT and overseas trade management legal guidelines

I received US citizenship in February and have been living in India since April 15th. I obtained Overseas Citizenship from India (OCI). What is my status for bank accounts and income tax purposes? I am a retired senior from India and I only have interest income in India.

—Name withheld upon request

The regulations for determining the residence status under the Foreign Exchange Control Act differ from those under the Income Tax Act. The currency status of residence affects the status of your bank accounts.

Under the Income Tax Act, residential status is determined based on a person’s physical presence in India during a fiscal year (FY) and the previous 10 FYs.

The residential status has to be determined anew every year. If the individual meets any of the following basic requirements, they will be considered a “Resident”, otherwise they will be considered a “Non-Resident”: Physical presence in India during the relevant fiscal year is 182 days or more; physical presence in India during the relevant financial year is 60 days or more and 365 days or more in the previous four financial years; an individual who is an Indian citizen and has an aggregate income that has no income from overseas sources 15 lakh during the relevant FY if it is not taxable in any other country or territory due to its place of residence or domicile or other criteria of a similar nature (rule of residence).

For an Indian citizen or person of Indian origin (PIO) coming to India outside India for a visit, the 60-day limit in the second basic condition is modified as follows: from foreign sources, exceeds 15 lakh, the 60 day requirement is replaced by 120 days; in all other cases the condition of 60 days is replaced by 182 days.

A resident can qualify as either a Resident and Ordinary Resident (ROR) or a Resident but Not Ordinary Resident (RNOR). If any of the following additional conditions are met, the individual would qualify as an RNOR; if not, such a person would qualify as a ROR: Non-Indian Resident (subject to the aforementioned Basic Conditions) in two out of 10 FYs prior to the relevant FY; physical presence in India is 729 days or less in the seven fiscal years preceding each fiscal year; resident based on the 120-day rule; or residents due to the applicable residence regulations.

A person qualified as a ROR is liable to tax in India on their worldwide income and must report all foreign assets on the Indian Income Tax Return (ITR). In addition, income generated from overseas assets for the year in question must be reported in relation to each overseas asset along with the type of income and the type of income under which that income was offered for taxation in the Indian ITR.

A person who qualifies as an NR or RNOR is required to pay tax on the following types of income: income generated or generated in India; Income believed to be generated or generated in India; and income received or deemed to have been received in India. In the case of RNOR, income generated or generated outside India from a company controlled in India or a profession established in India is also taxable in India.

Under the Foreign Exchange Control Act, a person leaving India to pursue an employment or business activity, or for any other purpose indicative of their intention to remain outside India for an uncertain period of time may be considered a “Non-Indian Resident”.

In your case, it is important to determine your residence status under income tax and foreign exchange law.

Indian income tax residency status is based on your physical presence in India. Interest earned on bank accounts in India is taxable in India. However, you can claim a deduction up to 50,000 under Section 80TTB for seniors aged 60 and over available during the relevant financial year if you are considered “resident” under income tax law.

Sonu Iyer is a tax partner and head of HR at EY India.

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