Prove tax residency to avail of tax exemption in India

Source:Live Mint

As a non-resident, you will be taxed only on income earned and received in India. Income earned and received outside India will not be taxable in India.

I invested in the initial public offering (IPO) of an Indian company through my non-resident external (NRE) account last year. The stocks are at a good price right now and I would like to book profits. What will be the tax implications earned on the interest earned? I am a non-resident Indian (NRI) living in the UK.

—Samir Gathe

Equity shares of an Indian company that is listed on a recognized stock exchange in India are considered as long-term capital assets if held for more than 12 months. However, if they are held for shorter duration, they will qualify as short-term capital assets.

Long-term capital gains on sale of listed equity shares are exempt from tax in India. Short-term capital gains on the same are taxable at flat 15% plus surcharge and cess. That is at a maximum marginal rate of 17.304%.

How does India’s double tax avoidance agreement (DTAA) with Australia—where I have been working for the past two years—affect my income here and the Indian salary I receive back home?

—Sundar N.

Since you have been working in Australia for the past two years, for financial year 2015-16, you will most likely qualify as non-resident in India under the India Income-tax Act, 1961. This is because of the following reasons:

a) Your stay in India during financial year 2015-16 will be less than 182 days; and

b) You have gone abroad for employment.

As a non-resident, you will be taxed only on income earned and received in India. Income earned and received outside India will not be taxable in India. Thus, your salary income received in Australia is not taxable in India. However, salary income received in India will be taxable in India.

You may claim benefit under DTAA between Australia and India depending upon your residential status in both these countries under the Agreement. It is likely that you will qualify as a resident of Australia.

In such a case, you may claim the salary received in India for the period that you have been working in Australia as exempt from tax in India. However, to be able to claim such a tax exemption in India, you will need to get a tax residency certificate from Australia.

You may file an income tax return in India to claim the salary income received in India as exempt from tax and for refund of any taxes that you may have already deposited on this salary.


  1. Sir,
    I am working as a freelance in India. I am an Indian citizen. I am providing my consultant services as broker or as an intermediary on trade, investments, financial services, Bullion transactions to the foreign clients. Out of such services provided online, I am getting my fees , commission from through my bank current account India.

    1) Can these income be taxable in my hands received in India.

    2) if I will open bank account in outside India, receive these income, and then repatriate these funds to my Indian bank account.
    In this, can it be taxable in India?

    Please advice.


      • Dear Manoranjan,

        Section 6 of the Income Tax Act 1961 defines the residential status of a person & Section 5 specifies the tax incidence of different tax payers.

        If a person is a resident in India in terms of Section 5 , any income (i.e global income) derived by a resident shall be taxable in India (Section 5). Therefore, all the income which is arising to him on account consultancy services shall be taxable in India.

        Secondly , even if you open a bank account outside India , the income will be taxable in India.

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