Top News

Many Indian professionals are sent abroad by their companies for a few months or even years. But once they return, a common question arises — Do they need to file Income Tax Returns (ITR) in India and pay tax on their foreign income? The answer depends on two crucial factors:

1. Your residential status in India during the financial year

2. Whether your income was earned abroad or in India

Tax expert Balwant Jain explained to Moneycontrol that these two criteria determine whether a returning employee needs to report global income or just Indian earnings.

How Residential Status Is Determined

The Income Tax Act defines residential status based on the number of days an individual spends in India during a financial year. A person will be considered a Resident if:

• They stayed in India for 182 days or more during the relevant financial year, or

• They stayed in India for 60 days or more during the financial year and for at least 365 days in the preceding four years.

Special Cases for Indian Citizens Abroad

• If an Indian citizen leaves the country for employment abroad (or works as a crew member on an Indian ship), the 60-day condition is relaxed to 182 days.

• Similarly, when an Indian citizen or a person of Indian origin visits India, they must stay at least 182 days in the country during that year to qualify as a Resident.

Additionally, if such a person’s total income in India (excluding foreign income) exceeds ₹15 lakh, they may still be treated as a Resident even if they spent fewer days in India.

Additional Conditions for Residency

Beyond the basic rules, two further tests can also make an individual a Resident for tax purposes:

1. The person was a Resident in India for at least two out of the past 10 financial years.

2. The person spent 730 days or more in India during the past seven years.

If both these additional conditions are met, and the person also satisfies one of the basic rules, they are considered a Resident and Ordinarily Resident (ROR). In this case, their global income becomes taxable in India, subject to relief under a Double Taxation Avoidance Agreement (DTAA) between India and the foreign country.

If the basic condition is met but the additional ones are not, the person is categorized as Resident but Not Ordinarily Resident (RNOR). In this situation, only their Indian income and income sourced from India but received abroad are taxable in India.

If none of the basic conditions are met, the individual is considered a Non-Resident Indian (NRI). In that case, only income earned in India is taxable, while foreign earnings remain exempt.

Example: Returning Employees from Global Firms

Many multinational companies send Indian employees abroad for temporary assignments. When such employees return, they often forget to evaluate their residential status carefully. For instance, if someone stayed less than 182 days in India after returning, they may still qualify as an NRI, and only their Indian income would be taxed. However, if they crossed the residency threshold, then their global income may become taxable in India.

Why Residential Status Matters Every Year

It is important to note that residential status is determined afresh for each financial year. A person may be an NRI one year, RNOR the next, and a full Resident later, depending on their travel and stay. This dynamic status directly impacts whether foreign income should be declared and taxed in India.

Key Takeaways for Returning Indians

• If you worked abroad and are now back in India, check your residential status before filing ITR.

• As a Resident, your global income may be taxable in India.

• As an RNOR, only Indian income and certain Indian-sourced foreign income are taxed.

• As an NRI, only Indian earnings are taxable, foreign income is exempt.

• Always verify DTAA provisions to avoid double taxation on foreign earnings.

Conclusion

For Indians returning from overseas work assignments, filing an Income Tax Return depends on how long they stayed in India during the year and where their income originated. Since residential status changes annually, it is essential to calculate it correctly before filing ITR. Proper classification ensures compliance while avoiding unnecessary tax burdens.