What will be the status of OCI cardholder for IT purpose?

– Name withheld on request

The rules for determining residential status under the Exchange Control Act are different from those under the Income Tax Act. Residential status affects the status of your bank accounts under the Exchange Control Act.

Under the Income Tax Act, residential status is determined on the basis of physical presence of a person in India during one financial year (financial year) and the last 10 financial years. For Indian citizens, even if they do not become resident on the basis of physical presence in India, they may still be resident (but ordinary citizens) on the basis of absence of liability to pay tax in any other country or territory by reason of residence or residence not be a resident). Any other criterion of similar nature, if income from India exceeds 1.5 million. Residential status requires a fresh assessment each year.

The person would qualify as a ‘resident’ if he satisfies any of the basic conditions mentioned below; Otherwise, he would qualify as a ‘non-resident’. A resident can qualify as either a resident and ordinarily resident (ROR) or resident but not ordinarily resident (RNOR).

A person who qualifies as ROR is taxable in India on his worldwide income and is required to report all foreign assets in India’s Income Tax Return (ITR). Also, the income earned from such foreign asset during the relevant year, along with the nature of income and the head of income under which such income is presented for tax in India ITR, needs to be reported in respect of each foreign asset. Is.

A person who qualifies as a non-resident or RNOR has to pay tax on the following incomes: income earned or arising in India, income earned or arising in India, and income deemed to be received or received in India . In case of RNOR, income earned or arising outside India from a business or professional set-up controlled in India is also taxable in India.

Under the Exchange Control Act, when a person shows his intention to stay outside India for an indefinite period for the purpose of employment or for carrying on business or for any other purpose, he is deemed to be a “person resident outside India”. can go. A non-resident Indian (NRI) is a “person resident outside India” who is either a citizen of India or a person of Indian origin. As a “person resident outside India”, he/she needs to assign his/her existing resident bank accounts to non-resident accounts due to change in his/her residential status. Similarly, if a person is coming to India for employment, business or occupation or with the intention of staying in India for an indefinite period, then in such case, under the Exchange Control Act, the person shall be deemed to be a “person resident in India”. would be eligible.

In your case, it is important to determine your residential status under the Income Tax Act and the Exchange Control Act.

Interest income from bank accounts in India will be taxable in India. However, you can claim deduction up to 50,000 under section 80TTB available to senior citizens aged 60 years or more during the relevant financial year if you qualify as a “resident” of India under the Income Tax Act. If you qualify as an RNOR under the Income Tax Act, you can claim exemption from income tax on interest income on foreign currency deposits with scheduled banks. Also, if deposits with Indian banks/Public companies were made with inward remittance of convertible foreign currency while you were a non-resident, you can claim a lower tax rate of 20% (plus applicable surcharges) even after the eligible resident and Cess), till encashment of such deposit by opting for such option in the ITR, if such option is beneficial to you.

Sonu Iyer is EY India’s Tax Partner and People Advisory Services Leader.