Tax residency is a critical financial concept that determines where you are primarily liable for taxes. For Non-Resident Indians, it depends on several key factors including the number of days spent in a country, your permanent home location, economic connections, and professional commitments. Refer this how India determines an individual as NRI.

The primary considerations include your physical presence in a country (typically measured by days spent), your economic ties (primary income source, investment management), and personal connections (family, professional networks, long-term settlement intentions).

Your tax residency status significantly impacts your tax obligations by determining:

• Which country has the primary right to tax your income
• How your global income is taxed
• Your reporting requirements
• Potential benefits from international tax treaties

Official Government Residency Test Links:

• United Kingdom:

HMRC Statutory Residence Test

• United States:

IRS Substantial Presence Test

• Australia:

Australian Taxation Office Residency Test

• Canada:

Canada Revenue Agency Residency Rules

• Singapore:

Inland Revenue Authority of Singapore

Other country NRIs can refer to their respective country of residence websites.

The Double Taxation Avoidance Agreement (DTAA) is a crucial financial instrument for NRIs, preventing them from paying tax on the same income in both their country of residence and India.

India has established Double Taxation Avoidance Agreements (DTAAs) with over 90 countries, covering key NRI destinations including the United States, United Kingdom, United Arab Emirates, Australia, Canada, Singapore, and numerous European nations.

Here’s how it works:

• Prevents double taxation on same income
• Reduces overall tax liability
• Provides tax credits in both countries
• Applies to various income types:
  • Salary
  • Rental income
  • Capital gains
  • Dividend income

For example, if you earn income in the UK and have tax obligations in India, DTAA ensures you’re not taxed twice. You’ll typically pay tax in your country of residence and receive credit for taxes paid in India.

NRIs investing in Indian financial instruments face unique tax implications across different investment types:

Equity Investments

• Long-term capital gains (held over 1 year): 20% with indexation benefit
• Short-term capital gains: 12.5% tax
• Dividend income taxed at applicable rates

Fixed Deposits

• TDS Rate: 10%
• Interest income is taxable at normal income tax rates
• NRE accounts offer tax-free interest
• NRO accounts have taxable interest

Mutual Funds

• Equity funds: Similar taxation as direct equity
• Debt funds: 12.5% or 20% for LTCG and STCG
• Different tax rates for growth and dividend options

Repatriation Considerations

• Limits on fund transfer from NRO accounts
• Specific documentation required
• Compliance with RBI regulations

Key Reporting Requirements

• Form 26AS tracking
• Accurate income reporting
• Potential tax credit in country of residence