Assess tax residency status after extended stay abroad

Non-residents must furnish a tax residency certificate and fill Form 10F to claim DTAA benefits

- BINDISHA SARANG

The Income-Tax Appellate Tribunal (ITAT), Delhi bench, recently ruled in favour of Devi Dayal, who had been deputed by his employers to work on a project in Austria. The ITAT ruled that salary and allowances earned abroad by a 'non-resident' for services rendered overseas are not taxable in India. The employer disbursed both the salary and compensatory allowance overseas, with the allowance accessible through a credit card valid only in Austria.

"Since he had failed to furnish a Tax Residency Certificate (TRC) from Austria, the tax authorities deemed the allowances taxable in India.

However, the ITAT ruled in the taxpayer's favour, stating that since the services were rendered outside India, the salary was not taxable in India," says Varun Chablani, an international tax lawyer.

Many taxpayers find the tax residency rules perplexing. "Under Indian tax laws, tax incidence arises based on residential status, which in turn depends on the number of days spent in India," says Vivek Jalan, partner, Tax Connect Advisory.

Who is a resident?

A person is a tax resident of India if he is physically present in the country for 182 days in a financial year or if he spends 60 days during the relevant period and 365 days in the four immediately preceding financial years.

"Once an individual qualifies as a resident, the next step is to determine if he is a Resident and Ordinarily Resident (ROR) or Resident but Not Ordinarily Resident (RNOR)," says Megha Jain, tax expert, Cleartax.