2(29A): “liable to tax”, in relation to a person and with reference to a country, means that there is an income-tax liability on such person under the law of that country for the time being in force.

Determination of residential status of an Individual

An individual is considered to be resident in India during a year if:

  • He has been in India for an aggregate period of 182 days or more during the year; or
  • He has been in India for an aggregate period of 60 days or more during the year and he has been in India for an aggregate period of 365 days or more during the preceding 4 years.  Or
  • Deemed Resident: He is a citizen of India having Income from Indian Sources exceeding Rs.15 lakhs and he is not liable to tax in any other country by reason of his domicile or residence of any other of criteria of similar nature

In case of an individual being citizen of India or a person of Indian Origin (‘PIO’) who leaves India during the year for the purpose of employment outside India, the condition 60 days substituted with 182 days

In case of an individual being citizen of India or a PIO who being outside India comes to visit India dung the year, the condition of 60 days is substituted with                                                                              

120 days if income from Indian Sources exceeds Rs. 15 lakhs                                                    

182 days 1f income from Indian Sources does not exceed Rs.15 lakhs

An individual is considered to “not ordinarily resident “in India in any previous year if such persons

  • Has been a non-resident in India in 9 out of the 10 previous years preceding that year;  or
  • has been dung the 7 previous years preceding that year been in India for a period of  729 days or less or
  • A citizen of India or a PIO who being outside India comes to visit India 1f such person has total Income from Indian sources exceeding NR 15 lakh rupees during the previous year and has been In India for a period or 120 days or more but  less than 182 days or
  • A citizen of India who 1s deemed to be resident In India under Section 6(1A)

Deemed Residents

An Individual being a citizen of India , having total income from indian sources, exceeding Rs 15 Lakh during the previous year, Shall be deemed to be resident of india in that previous year.

If he is not liable to tax in any other country then such deemed residents are considered as “resident but not ordinarily resident”. 

Citizens of India residing in countries where there is no tax laws (such as UAE) are likely to be treated as deemed resident (RNOR) in India by the Income Tax Authorities regardless of the number of days spent in india (If the Indian Income of such Individual exceeds Rs 15 Lakhs)

Impact of amendments – Increase in scope of total income

  • Income that accrues or arises outside India but is derived from business controlled in or professional set up in India to become chargeable to tax in India in the hands of such individuals
  • Any other foreign sourced income still not to be taxable in India even after individual  qualifies  as RNOR (e.g. Salary, rent, interest, business profit, etc. earned outside India)
  • Exemptions available to Non Resident will not be available
  • Treaty benefits lost :-The importance of the breaker rule will increase to  determine status of residence of the   under   the   DTAA,  If   individual   qualifies  as  resident  of  India  after  applying the breaker test various concessions given under the DTAA with regard to capital gain, dividend, etc. will be lost. 

If Individual is resident of India and UAE both

Tie Breaker Rule – Individual will be resident of that country in which Permanent Home Available, if home available at both countries then in country where personal or economic relation are more closer then habitual Abode &  nationality will be check.

Determination of status of residence of an individual under DTAA between India and UAE – Tie Breaker Rule application

Exemptions :

  • Exemption in respect of interest on NRE account balance that is available to a non-resident as per FEMA;
  • Exemption in respect of interest on FCNR deposits that is available to a non-resident or a RNOR.

Such income should not be included while computing total income for evaluating of INR 15 lakhs threshold as the term used is “total income” and exempt income does not form part of total income.

The impact of the amendment is only on such Indian Citizens, having total income from Indian sources exceeding INR 15 lakhs, and who are not liable to pay tax in any country other than India by reason of  his residence.

Considering the adverse impact of the amendment, such person in order to not qualify as deemed resident may possibly:

  • Ensure that the income from Indian sources do not exceed INR 15 lakhs: or
  • Ensure  that  individual qualifies as resident of some other country and some tax is payable in any country other than India.
  • Don’t have any business Income that accrues or arises outside India but is derived from business controlled in or professional set up in India
  • Do not invest in such sectors where your tax rates change

  example Dividend Income is taxable in India

   * On Resident – Slab

* On NRI – 20%

as per DTAA between India & UAE

    Dividend Income in India is taxable – 10%

    Short Term Capital Gain From Sell of Mutual Fund in India is Exempt