Friday, February 10, 2012

All about taxes - Part II

To my sequel of taxation of NRIs in the US here is a brief overview of the Indian Tax rules that may be applicable on your return.

Basically there are three categories you may fall into.

  1. Residents. These are majority of Indians living in India. You are obligated to report your worldwide income to the Govt of India and pay taxes on it. If you have income in the US as well and have paid tax in the US, you may be eligible for a tax credit based for the tax you have paid in the US. But in general you will be paying taxes in both countries on income earned in both countries.
  2. NRIs (Non Resident Indians). If you are away from the country for professional reasons for more than 183 days in a year you become an NRI. In this state you are required to report and pay taxes only on Income earned in India, not abroad.
  3. NOR (Not Ordinarily Residents). This is a transitional state which gets applied to you for 2 years (depending on meeting certain conditions). Basically during your transition back to India you enjoy NRI status (per Indian tax rules) for 2 years until you transition to being a resident. NOR's don't have to report and pay taxes on their foreign income. 
However - one caveat to the above is that there is a new Direct Tax Code due to come into effect in April 2012 which removed the NOR status for Indians and simplifies the tax laws for Indians. Here is an article that describes this in more detail. 


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