Q.1067 US citizen retiring in

India, Residency, Indian & US

Taxes Applicable . . .

Question: Hello Mr Chand I wonder if you have given some thoughts on DTAA residence requirements, I plan to retire in India. I have permanent residence in USA, All my financial Interest (income) are in USA. Also I am US citizen (OCI card holder). Will I become India tax resident if I continuously live in India for 182 days or more indefinitely with occasional trips to USA. I will rent in India and have zero income in India. Girish kumar Answer: Generally A person would be considered to be a RESIDENT of India for income tax purposes if: 1. They stay in India for 182 days or more during the financial year*. OR 2. If they are in India for at least 365 days during the four preceding years AND at least 60 days in that year.  The 60 day period mentioned here is increased to 182 days for members of a shipping crew or for those people of Indian origin holding foreign passports. The 182 day period helps OCI & PIOs visiting India for more than 60 days from being taxed as a resident if they simply decide to take an extended family vacation in India that may be more than 60 days but less than 182 days. If none of the above two conditions apply, then the person would be considered to be a non-resident. *Note: The financial year in India runs from April 1st to March 31st. The government of Mr. Modi is however considering changing the financial year from January to December in future]

Foreign income of returning non-

residents exempt from Indian taxes

There is another category for tax purposes in India to help NRIs who return to India after spending several years abroad. This category is referred to as Resident but not ordinarily resident [RNOR]. Foreign income of those who have RNOR status is exempt for taxation in India. Who can claim RNOR Status Returning NRIs, OCIs or PIO are considered to have RNOR status if they: 1. Have been an NRI in 9 out of 10 financial years preceding the year or 2. Have during the 7 financial years preceding the year been in India for a period of 729 days or less. Only one of the above two conditions needs to be satisfied to claim RNOR status. Benefit of RNOR Status When Non-residents return to India and become resident for taxation purposes, their worldwide income becomes taxable in India UNLESS they qualify for RNOR. Those who have RNOR status are taxable only on their income form Indian sources and their foreign income is exempt from taxes in India as long as they continue to qualify for RNOR status. When a person’s RNOR status expires, then their worldwide income becomes taxable in India. However, the Double Tax Avoidance Agreement [DTAA] continues to apply and ensures that no one is taxed twice on the same income. If you plan to have no income in India, then there would be no tax liability in India and your foreign income would be exempt from taxation in India until you hold RNOR status. Once your RNOR status expires, then your foreign income will become taxable in India under worldwide income tax rules, although you would continue to get the benefit of the DTAA. Any tax on your foreign income in India will be subject to DTAA agreement between India and the United States. Which country will tax would generally depend on the type/source of income. Financial planning before retiring abroad is a good thing, contact an accountant and plan the taxation and financial aspects before retiring abroad. In the long run this will save you money and above all peace of mind by keeping you in compliance of both Indian and USA tax laws.