Q561. USA Citizen with OCI in

India can avoid paying Indian taxes

on US income

Question: Mr. Chand, I am a retired citizen of USA who has come back to enjoy living in India. I am an India born person who immigrated to USA 40 years ago. I want to spend part of my each year with my family and my childhood friends in India. I do not care to work or earn income in India. Do I have to pay taxes on my US income in India? I only bring just enough money to "live- on" in India and I do pay taxes in the United States on my US income. I must add, I have acquired an OCI card for myself and a PIO card for my American wife to make travel to India easy and cumbersome. I have no desire whatsoever to become citizen of India nor am I disposing off my properties in the USA. Thanking you Ram K. Singh Answer: For taxation purposes, normally a person can be considered to be a resident or non-resident (NRI) of India. Where as Indian residents must pay taxes on their worldwide income, NRIs on the other hand pay Indian taxes only on their Indian income and get protection of ‘Double Tax Avoidance Agreement’ for their foreign income. Keeping in mind the number of persons of Indian origin such as yourself, who hold foreign passports and return to India for settlement or extended periods, the Indian Income Tax Act provides for another category of residential status in India called ‘Resident but not Ordinarily Resident in India’ this is referred to as RNOR. RNOR is basically a status that is a grace period for a Non-Resident to become a full Resident for taxation purposes. Any person who has RNOR status in India, does not have to pay tax on their foreign income and they continue to be treated as NRIs as long as they enjoy RNOR status.

How long can a person claim to be

RNOR

To be RNOR a person has to satisfy one of the following two conditions. Only ONE condition needs to be satisfied: 1. Be a non-resident of India for at least 9 out of 10 previous years prior to the previous year under consideration. OR 2. Stay in India during the 7 previous years prior to the previous year under consideration should be 729 days or less. For most people RNOR status will end in two years, because after two years of continuous stay in India, they would no longer satisfy condition #1 of having been NRI for nine out of ten years!.

RNOR status for three years

Since the income tax financial year for Indian taxation is from 1st April to 31st March the following year, if return to India dates are planned carefully to arrive in India a few days after the new financial year starts, some people depending on how long they have stayed away from India can claim RNOR for three years, if their stay in India totals 729 days or less in the previous seven years, #2 condition above. As an OCI when you return to India, you will automatically be RNOR and your income in USA will not be liable to any taxes in India. There would also be no requirement to file taxes in India if you do not earn any income in India. What you need to watch out for is that your RNOR status will end when you fail to meet at least ONE of the two conditions mentioned above and at that time your USA income will also become taxable in India. Since you plan to keep your ties with USA, you can plan your periods of stay in India in such a manner that you continue spend less than 729 days in India for the seven previous years as per condition #2.