• Returning to India as a Contractor with Foreign Company

I have OCI status in India and have lived in UK for the past 18 years. I will be returning to India for personal reasons for a few years. I will continue to work for my current UK employer although I will be reclassified into a contractor from my current employee status due to my relocation out of UK. It is possible that, due to my intention to return to UK after some time, I would still be liable for UK taxes on my contactor pay. 

For the 2022-23 fiscal year in India, I would have stayed in India for more than 182 days. But, from what I have read, I would have RNOR status in India for this first year. After my relocation to India, would my contractor pay be subjected to Indian taxes if I was already paying taxes to UK? To confirm, I am referring to the pay for the services I would have offered from being located in India, to the UK company. 

I believe RNOR status exempts one from paying taxes on income/gains that arise outside the country. I wonder whether this would cover my contractor pay (delivered remotely from India to the UK company as a contractor).
Asked 17 days ago in Income Tax

Hi

 

Such income would be taxable in India. However, you can claim foreign tax credit of the taxes paid in UK while filing the income tax returns in India. 

Lakshita Bhandari
CA, Mumbai
5639 Answers
773 Consultations

5.0 on 5.0

Under Income Tax Act 1961, tax incidence depends on the scope of total income and scope of total income would depends on the residential status of a person. Residential status is calculated as on 31.03.XXXX for each financial year. For F.Y. 2022-23, it would be calculated as on 31.03.2023. You would retain the status of RNOR till 2024-25. Services provided by a person located in India to an overseas recipient is an Indian Income and chargeable to tax in India. Income from such services would be chargeable under the head Income from business/Profession. Income tax paid in the UK would be eligible for credit under DTAA. RNOR is liable to pay tax on the entire Indian income and foreign income which arises from business or profession set up in India.

 

Under GST, it would be treated as export of servcies subject to fulfillment of specified conditions. If the turnover exceeds Rs. 20 lacs in a financial year then you would be liable to obtain GST registration and file GST returns. You can apply for LUT (letter of undertaking) and claim export of services without payment of taxes. Export of services are treated as zero-rated supplies. Collect proper FIRC from the banker. Raise proper invoices to the UK clients. Open current account.

 

For detailed discussion, you may opt for phone consultation.

 

Vivek Kumar Arora
CA, Delhi
4432 Answers
549 Consultations

5.0 on 5.0

In the case of RNOR, income which is accrued and received in India will be liable to Income tax in India. 

As mentioned above, you will be working remotely for your client from India, the contract income will be earned in India. So it will be liable to tax in India. 

Further, if any tax is being paid on this contract income in the UK then that tax will be allowed as a credit in India while filing the Income Tax Return. 

Also, look into the GST provisions if your turnover exceeds Rs. 20 Lakhs/10 Lakhs(for special category states) during a FY. 

 

Puja Sharma
CA, Jaipur
33 Answers

Not rated

No as per Income tax rules you will become a resident for India and accordingly you will have to pay tax on your income in India.

 

Since you would be India and tax resident in India you might not be required to pay tax in UK. You can check the same with your UK employer.

 

Your income is accruing in India as you would be doing your contractor work from India and hence the business will be controlled from India and accordingly taxable in India.

 

Hope you find the information helpful, if yes do rate if 5 and provide your valuable feedback for my improvement.

Thank you.

Naman Maloo
CA, Jaipur
4026 Answers
64 Consultations

5.0 on 5.0

Hi,

Since you are resident in India (RNOR), income from service rendered in India, would be taxable in India. That income might not be taxable in UK as per India-UK tax treaty. If it is taxed, you can claim the credit of taxes paid in UK. 

 

Do reach out for detailed consultation. 

 

Regards

 

Prerna Peshori
CA, Pune
60 Answers

5.0 on 5.0

If you are getting income as contractor than under Indian law the business connection will establish in India and therefore you need to pay Tax here in india, however any tax paid in UK on the said income can be adjusted back while filing return in India

 

RNOR status will only help you to save taxes on passive income where global taxation will not trigger on any income arising out of India, this income essentially arising in india through your stay and work from india and therefore tax will be payable

Vishrut Rajesh Shah
CA, Ahmedabad
804 Answers
30 Consultations

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