Like resident Indians, foreign nationals residing and working in India must pay income tax and file tax returns if their annual income is above ₹2.5 lakhs. However, certain factors determine their taxability.
If you are a foreign national in India, here are a few important things you should know about income tax and returns filing:
1. Residency-Based Taxation
Like most other countries, India follows a residency-based tax system. Section 6 of the IT Act defines all the provisions regarding the residency status of an individual in India.
| Residency Status | Meaning | Income Tax Applicable On |
| Resident | In India, for at least 182 days in the financial year or 60 days in the relevant financial year and at least 365 days in four preceding financial years. | Global Income |
| Resident and Ordinarily Resident (ROR)
|
A resident Indian for any 2 of the last 10 financial years and has spent at least 729 days in India in seven preceding financial years. | Global Income |
| Resident but Not Ordinarily Resident (RNOR) | Individual who is a resident Indian as per the residency clause or has lived in India for at least 120 days but does not satisfy other basic criteria | Indian Income |
The income tax can also be deducted at source (TDS); however, foreign nationals not earning more than ₹2.5 lakhs in a financial year can claim a tax refund by filing income tax returns.
2. Taxable Income of Foreign Nationals
Income of foreign nationals on which income tax is applicable are as follows:
Employment Income
- Salary
- Cash compensation
- Allowances
- Wages
- Reimbursements
Non-Employment Income
- Income from foreign investments sent to an Indian bank
- Capital gains from selling assets in India
- Royalties from an Indian organization
- Interest payments received from infrastructure debt funds in India
3. Tax-Exempt Income of Foreign Nationals
The different types of incomes received by foreign nationals that are exempt from income tax are as follows:
- Remuneration received by foreign nationals
- Salaries received by employees of foreign shipping vessel
- Payment received by foreign nationals from a foreign enterprise
- Remuneration received by foreign government employees
4. DTAA (Double Tax Avoidance Agreement)
As a foreign national, an individual may have to pay income tax on an income in India and their home country. In such cases, they can take advantage of DTAA to ensure that they don’t have to pay taxes on the same income twice. Currently, India has DTAA with more than 80 countries across the world.
5. Foreign Nationals Filing Tax Returns
Foreign nationals paying income tax in India should mandatorily file income tax returns online or offline before 31st July every year. Here are the documents you’ll need for filing tax returns in India:
- Form 16
- TDS (Tax Deducted at Source) certificate
- Bank statements
- Property details
- Investment proofs
Tax Laws for Foreign Nationals in India
Like resident Indians, foreign nationals are also liable to pay income tax and file tax returns in India. They can also take advantage of several deductions and exemptions to reduce their tax liabilities.
Foreigners can consider the professional assistance of a tax advisor to take maximum advantage of the tax laws and reduce their income tax legally and transparently.