Dual Residency & Taxation in India: A Complete Guide for NRIs, Expats & Returning Indians ITR filings

Confused about being taxed in two countries? Discover how residency rules, DTAA relief, and smart planning can save you from double taxation and unnecessary stress.

Dual Residency & Taxation in India: A Complete Guide for NRIs, Expats & Returning Indians

NRI, Expat & Returning Indian Taxation: Complete Guide to Residency, DTAA & ITR Filing in India

In today’s globalized economy, individuals frequently move between India and other countries for employment, business, or personal reasons. Such transitions often lead to complex tax residency situations under the Indian Income-tax Act, 1961 (the Act) as well as Double Taxation Avoidance Agreements (DTAA).

A common issue faced by Non-Resident Indians (NRIs), returning Indians, and foreign nationals working in India is the possibility of being considered a ‘dual resident’. In such cases, tie-breaker rules under the relevant DTAA become crucial.

Key Judicial Precedents

1. Sameer Malhotra v. ACIT (Delhi ITAT, 2023; India–Singapore DTAA)

• The taxpayer, an Indian citizen working in Singapore, claimed non-resident status in India.

• He maintained a permanent home in Singapore and strong economic ties there.

• The Delhi ITAT applied the tie-breaker test under Article 4(2) of the India–Singapore DTAA and held that the taxpayer was a resident of Singapore, despite exceeding 182 days in India.

• This ruling emphasized that centre of vital interests (family, economic activities, employment) outweighs physical presence alone.

2. Raman Chopra v. DCIT (2010; India–USA DTAA)

• The individual, a dual resident of India and USA, was employed in the USA till June 2010.

• For 01.04.2010–30.06.2010, he was deemed a resident of USA under the tie-breaker test in Article4(2).

• Accordingly, salary earned in USA during this period was exempt from Indian taxation under Article 16(1).

• The ruling confirms that DTAA relief overrides domestic residency rules, ensuring income is taxed only in the rightful jurisdiction.

Part-Year Residency Scenarios:

Residency in India can be for part of the year, depending on movement across countries. Some common cases include:

1. Indian leaving India mid-year for foreign employment – May qualify as Non-Resident from date of departure.

2. Indian returning to India mid-year after foreign employment – May qualify as Resident but not Ordinarily Resident (RNOR).

3. Foreign national coming to India mid-year for employment– May qualify as Resident or Non-Resident based on stay duration.

4. Foreign national leaving India mid-year after assignment – Residency to be computed up to date of departure.

   
   

   In all cases, DTAA tie-breaker provisions determine final residency, considering factors such as permanent home, centre of vital interests, habitual abode, and nationality – not merely ownership of a house.

Documents usually Required for NRI and Expat ITR Filing in India (Typical Dual Residency / Expat Cases)

• Rent agreement in India before leaving for USA

• Rent agreement in US before coming to India

• Rent agreement in India post joining Google (India)

• Employment agreement with Google (USA)

• Termination agreement with Google (USA)

• Employment agreement with Google (India)

• Salary pays slips from April 2024 till March 2025

• Bank statement of US bank account (1-4-24 to 31-3-25)

• Bank statement of all Indian bank accounts (1-4-24 to 31-3-25)

• Details of all foreign assets in USA and Indian assets as on 31-3-25 (including immovable property, bank balances, shares, mutual funds, etc.)

• Statements of loans (India or outside)

• Income Tax Return of USA for Calendar Year 2024

• Foreign Tax Credit (FTC) documents related to US income (ESOPs, salary, other income till Sept 2024)

• Any other documents as may be requested upon review of the above

Why Professional Help Matters?

So for an NRIs, Expats & Returning Indians ITR filings, when given the complexities of residency determination, DTAA application, and tie-breaker tests, it is essential to seek expert advice. Chartered Accountants specializing in cross-border taxation can assist in:

• Filing Income Tax Returns (ITR) for NRIs, expatriates, and foreign nationals in India.

• Applying DTAA provisions to avoid double taxation.

• Structuring financial and employment arrangements to ensure tax efficiency.

• Advising on part-year residency and mid-year transition cases.

We hope the above blog was helpful in enhancing your knowledge on the matter. In case of any queries feel free to get in touch with our team of experts.

 

Quote of the day:

“One thing is clear: The Founding Fathers never intended a nation where citizens would pay nearly half of everything they earn to the government.”

- Ron Paul

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CA Umang Jain

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