What will be the status of an OCI cardholder for IT purposes?

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The rules for determining residency status under the Exchange Control Act are different from those under the Income Tax Act. Resident status under the Exchange Control Act impacts the status of your bank accounts.

Under the Income Tax Act, residency status is determined based on an individual’s physical presence in India during a financial year (FY) and the previous 10 FYs. For Indian citizens, even if they do not become resident on the basis of physical presence in India, they can still become resident (but not ordinarily resident) on the basis of no obligation to pay taxes in any another country or territory by reason of their domicile or residence or any other criteria of a similar nature, if the income derived from India exceeds ₹15,000,000. Residential status must be determined annually.

If the individual meets one of the basic conditions mentioned below, the individual would be considered a “resident”; otherwise, he or she would be considered a “non-resident”. A resident may be referred to as resident and ordinarily resident (ROR) or resident but not ordinarily resident (RNOR).

An ROR qualified person is taxable on his worldwide income in India and is required to declare all foreign assets in the Indian Income Tax Return (ITR). Further, the income derived from such foreign assets in the relevant year together with the nature of the income and the head of income under which such income has been offered for tax in the Indian ITR must be declared for each asset. foreigner.

An individual who qualifies as a non-resident or an RNOR must pay tax on the following income: income arising or arising in India, income deemed to arise or arising in India, and income received or deemed to be received in India. In the case of RNOR, income earned or generated outside India by a controlled enterprise or professional organization in India is also taxable in India.

Under the Exchange Control Act, when a person leaves India for the purpose of taking up employment or carrying on business or for any other purpose indicating his intention to remain outside India for an indefinite period, he can be considered as a “person residing outside India”. A Non-Resident Indian (NRI) is a “person residing outside India” who is either an Indian citizen or a person of Indian descent. As a “person residing outside India”, he is required to designate his existing resident bank accounts to non-resident accounts due to a change in his residency status. Similarly, if a person comes to India for employment, business, vocation or with the intention of staying in India for an indefinite period of time, then in that case under the Exchange Control Act, the person will be considered a “resident of India”.

In your case, it is important to determine your residency 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 a deduction up to ₹50,000 under section 80TTB available to persons aged 60 or over in the relevant financial year if you are considered 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 regular banks. Additionally, if deposits with Indian banks/public companies were made with a transfer of convertible currency while you were a non-resident, you can claim a lower rate of tax of 20% (plus applicable surcharge and tax ) even after qualifying as a resident, until these deposits are cashed by choosing this option in the RTI if this option is beneficial to you.

Sonu Iyer is Tax Partner and Head of People Advisory Services, EY India.