India taxes on the basis of residence and source. That single sentence conceals most of the complexity a non-resident encounters: whether a person or company is taxed in India at all, at what rate, under which treaty, and what must be reported to the Reserve Bank of India before money can leave the country. This article sets out the framework we apply for clients, in the order the questions actually arise.
1. Residency decides almost everything
Before any question of rate or treaty can be answered, residential status must be determined for the relevant previous year. For individuals this turns on physical presence in India, tested against day-count thresholds under Section 6 of the Income-tax Act, with additional rules for Indian citizens and persons of Indian origin visiting India, and for those whose Indian income exceeds prescribed limits. Companies are tested on incorporation and on place of effective management.
The distinction that most often surprises clients is the intermediate status of Resident but Not Ordinarily Resident. An individual returning to India after a long period abroad may hold RNOR status for a limited number of years, during which foreign-sourced income generally remains outside the Indian tax net. Planning the date of return around this status is one of the few genuinely valuable timing decisions available to a returning NRI, and it must be planned before the move, not after.
2. What India can tax
A non-resident is taxable in India on income received in India, income accruing or arising in India, and income deemed to accrue or arise in India. The deeming provisions are broad: they reach business connection, property situated in India, capital assets in India, and certain categories of interest, royalty and technical service fees paid by residents.
For an NRI, this usually means Indian rental income, capital gains on Indian property or securities, and interest on NRO deposits are within charge, while foreign salary and foreign investment income generally are not. For a foreign company, the pivotal question is whether its activity in India rises to a business connection or, under a treaty, a permanent establishment.
3. Treaty relief is a claim, not an automatic entitlement
India has an extensive treaty network, and Section 90 allows a non-resident to be taxed under the Act or the applicable treaty, whichever is more beneficial. But the relief must be claimed, and it must be substantiated. In practice this requires a tax residency certificate issued by the home jurisdiction, Form 10F, and a declaration regarding permanent establishment where relevant.
Treaty positions on the same facts can differ materially between jurisdictions — a payment characterised as fees for technical services under one treaty may fall outside charge under another that includes a make-available requirement. Anti-abuse rules, including the principal purpose test introduced through the Multilateral Instrument, apply to arrangements whose main purpose is obtaining the benefit itself.
The documentation supporting a treaty position should be assembled at the time the position is taken, not when the notice arrives three years later.The AKV working rule
4. Withholding: the point at which most disputes begin
Under Section 195, any person paying a sum chargeable to tax to a non-resident must deduct tax at source. The obligation sits on the payer, and the consequences of getting it wrong — disallowance of the expense, interest, and treatment as an assessee in default — fall on the payer as well. This is why Indian buyers of property from NRIs, and Indian companies paying foreign vendors, are right to be cautious.
Two mechanisms relieve the pressure. An application under Section 195(2) or Section 197 can obtain a certificate for deduction at a lower or nil rate, which is particularly valuable on property sales where withholding would otherwise apply to the whole consideration rather than the gain. And Forms 15CA and 15CB — the latter certified by a Chartered Accountant — establish the basis on which the remittance is made.
5. Exchange control runs in parallel, not instead
Tax compliance does not discharge exchange-control obligations. The Foreign Exchange Management Act and the RBI's regulations govern whether a transaction is permitted at all, on what pricing, and what must be reported. Inbound investment generally requires reporting in Form FC-GPR within thirty days of allotment; transfers between residents and non-residents require FC-TRS; overseas investment by Indian residents brings its own annual reporting; and every company with foreign investment files the FLA return each July.
Repatriation from an NRO account is subject to annual limits and requires the certification described above. Where past filings have been missed, the compounding process exists precisely because these deadlines are so frequently discovered late — and voluntary compounding is materially better than waiting for the regulator.
6. Disclosure obligations run the other way too
Foreign asset reporting turns on the precise residential status, not merely on having returned to India. Schedule FA of the return is required from a person who is Resident and Ordinarily Resident; per the return instructions it is generally not called for from a Resident but Not Ordinarily Resident (RNOR) or from a Non-Resident. This distinction matters because a returning Indian is frequently RNOR for the first two or three years under section 6(6) — so the year in which ROR status begins is the year the disclosure obligation bites. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 attaches serious consequences to non-disclosure, and information now reaches Indian authorities through automatic exchange of information with a large number of jurisdictions. The first return filed as an ROR should therefore be prepared as a disclosure exercise, and the residential status for each year should be determined before the schedules are approached.
How we work with cross-border clients
- A residency and exposure review before the transaction or the move, not after
- A written position on treaty entitlement, with the supporting documents identified
- Withholding and lower-deduction certificates obtained ahead of payment dates
- FEMA reporting mapped to a calendar, with responsibility named for each filing
- Coordination with the client's adviser in the home jurisdiction so both sides agree on the characterisation
Cross-border work rewards sequence. The same facts, handled in the right order, frequently produce a materially better outcome at no additional risk — and handled in the wrong order, they produce an avoidable dispute. If a transaction is contemplated, the useful conversation is the one that happens before it is executed.
Scope of advice. This firm advises on the Indian tax, exchange-control and regulatory position. Where a matter also turns on the law of the country in which you are resident or in which an entity is incorporated, we set out the Indian position and coordinate with your adviser in that jurisdiction; we do not render advice on foreign law.
Discussing your position. If any part of this affects a transaction you are contemplating, the useful conversation is the one that happens before it is executed. A scoping call is the appropriate first step.
This article is general commentary on the law as it stands and is not advice on any specific facts. Tax and exchange-control positions change with amendments, notifications and judicial decisions; please confirm the current position with the firm before acting.