Scope of Total Income Based on Residential Status
Same ₹20 lakh income - but ROR pays tax on full ₹20L, NR pays only on ₹10L! Your residential status decides what's taxable. Let's decode the scope.
Quick Recap
Three categories:
- ROR (Resident & Ordinarily Resident)
- RNOR (Resident but Not Ordinarily Resident)
- NR (Non-Resident)
Scope of Total Income - Overview
Loading diagram…
Detailed Scope for Each Category
1. Resident & Ordinarily Resident (ROR)
All the following taxable:
A. Income received or deemed to be received in India
- Anywhere in world earned, received in India → Taxable
B. Income accrued or arisen or deemed to accrue/arise in India
- Earning happened in India → Taxable
C. Income earned outside India
- Even if received outside → Taxable (because ROR)
Simple rule: EVERYTHING taxable for ROR!
2. Resident but Not Ordinarily Resident (RNOR)
Taxable:
A. Income received or deemed to be received in India ✅
B. Income accrued or arisen or deemed to accrue/arise in India ✅
C. Foreign income from business controlled in India OR profession set up in India ✅
NOT taxable:
- Foreign income from business controlled from outside India ❌
- Foreign income from profession set up outside India ❌
- Passive foreign income (interest, dividend, capital gains) unless received in India ❌
3. Non-Resident (NR)
Taxable (only India connection):
A. Income received or deemed to be received in India ✅
B. Income accrued or arisen or deemed to accrue/arise in India ✅
NOT taxable:
- Any foreign income (even if business controlled from India) ❌
Classification Table
Loading comparison…
Detailed Examples
Example 1: ROR - Global Income Taxable
Suresh (Indian, ROR status):
Income:
- Salary in India: ₹10,00,000
- Rental income from flat in India: ₹2,00,000
- Interest from USA bank: ₹1,00,000
- Dividend from UK company: ₹50,000
- Capital gain from selling shares in Singapore: ₹3,00,000
Loading calculation…
All income taxable because ROR!
Example 2: RNOR - Partial Foreign Income
Priya (Indian, returned after 8 years abroad, RNOR status):
Income:
- Salary from IBM India: ₹15,00,000
- Rental from flat in India: ₹3,00,000
- Consulting business (office in USA, controlled from USA): ₹5,00,000
- Interest from USA bank: ₹1,00,000
- Dividend from Google (USA): ₹50,000
Loading calculation…
Foreign business/passive income NOT taxable for RNOR (if controlled outside)
Example 3: NR - Only India Income
John (American, works in USA, visits India 50 days, NR status):
Income:
- Salary from Google USA: $100,000 (₹83,00,000)
- Consulting fees from Infosys (India): ₹5,00,000
- Rental from property in Mumbai: ₹4,00,000
- Interest from USA bank: $5,000 (₹4,15,000)
- Dividend from USA stocks: $2,000 (₹1,66,000)
Loading calculation…
Only India-sourced income taxable for NR!
Where Does Income Accrue?
Salary: Where services rendered
- Work in India → Accrues in India
- Work in USA → Accrues in USA
Example: 6 months India, 6 months USA
- 50% salary accrues in India (taxable for all)
- 50% salary accrues in USA (taxable only for ROR)
Business: Where control & management situated
- Head office in India → Accrues in India
- Managed from abroad → Accrues abroad
House Property: Where property located
- Mumbai flat → Accrues in India (taxable for all)
Capital Gains: Where asset situated
- Shares of Indian company → Accrues in India
- Shares of USA company → Accrues in USA
Interest/Dividend: Where source of payment
- Indian bank FD → Accrues in India *USA bank FD → Accrues in USA
Deemed to Accrue in India
Even if received/earned outside, deemed to accrue in India if:
1. Salary for services rendered in India
- Paid in USA for work done in India → Deemed India income
2.. Transfer of capital asset situated in India
- Sell Indian property while abroad → Deemed India income
3. Business connection in India (Section 9)
- Foreign company doing business in India
- Deemed to have India income (profit attribution)
RNOR - Business Controlled Test
Key question: Where is business controlled?
Controlled from India (taxable for RNOR):
- Board meetings in India
- Key decisions in India
- Management resides in India
Controlled outside India (NOT taxable for RNOR):
- All management abroad
- Decisions abroad
- Indian person is just passive investor
Example:
- Amit (RNOR) owns 50% shares in USA company
- He's just investor, not managing
- Dividend/profit: NOT taxable (passive foreign income)
But if Amit manages company from India:
- Business controlled from India
- Profit/dividend: Taxable for RNOR
Comprehensive Comparison
| Income Type | ROR | RNOR | NR |
|---|---|---|---|
| India salary | ✅ | ✅ | ✅ |
| India rent | ✅ | ✅ | ✅ |
| India business | ✅ | ✅ | ✅ |
| Foreign salary (for India work) | ✅ | ✅ | ✅ |
| Foreign salary (for foreign work) | ✅ | ❌ | ❌ |
| Foreign rent | ✅ | ❌ | ❌ |
| Foreign business (controlled from India) | ✅ | ✅ | ❌ |
| Foreign business (controlled outside) | ✅ | ❌ | ❌ |
| Foreign interest/dividend | ✅ | ❌ | ❌ |
| Foreign capital gains | ✅ | ❌ | ❌ |
Strategy for Tax Planning
If planning to become NR:
- Defer foreign income till you're NR
- Example: Sell foreign shares after becoming NR → Gain NOT taxable!
If RNOR (returning Indian):
- Good time to realize foreign gains (not taxable!)
- Bring back foreign money (no tax in India)
If ROR:
- All foreign income taxable
- Claim foreign tax credit (to avoid double taxation)
Foreign Tax Credit
If foreign income taxed in both countries:
- India allows credit for foreign tax paid
- Avoid double taxation
Example:
- USA income: $10,000
- USA tax paid: $2,000
- India tax on same: ₹1,50,000
India tax payable: ₹1,50,000 - ₹1,66,000 (USA tax) = NIL (credit exceeds!)
Summary
- ROR: Global income (India + foreign) fully taxable - highest tax burden
- RNOR: India income + foreign business controlled from India taxable - partial burden
- NR: Only India income taxable - minimum burden
- Accrual: Salary (where work done), House (where located), Business (where controlled)
- Deemed to accrue: Salary for India work (even if paid abroad), Indian asset sale
- RNOR advantage: Foreign passive income not taxable (good for returning Indians)
- Strategy: Defer foreign income till NR, realize gains during RNOR period
- Double taxation: Foreign tax credit available to avoid taxing twice
Quiz Time! 🎯
Loading quiz…
Congratulations! You've completed foundational Unit I concepts! 🎉
Next: Unit II - Income from Salaries in depth! 💼