Are my foreign consultancy fees subject to taxation?

After serving abroad for 32 years, a reader returned to India in 2023 with questions about tax implications on foreign consultancy services income. The individual inquired if they could accept foreign consultancy income in their bank account outside India and whether they could save on taxes by retaining income abroad.

According to tax experts, if the individual was a non-resident Indian (NRI) for at least nine out of 10 financial years preceding FY24-25, they would become a resident but not ordinarily resident (RNOR) for FY 2024-25. While foreign income is typically not taxable for RNOR individuals, income earned from providing consultancy services in India would be subject to taxation at normal slab rates. Credit for any taxes withheld in the foreign country can be claimed in India to the extent of the income tax payable under the Income Tax Act.

Additionally, as the individual would have become a resident under the Foreign Exchange Management Act (FEMA), they are not allowed to receive consultancy income in a foreign bank account. The receipts must be realized and repatriated to India within nine months from the provision of services.

In another query from an NRI living in Sharjah with a tax residency certificate in the UAE, it was asked whether the sale of Indian mutual fund units during a visit to India in December 2023 would be exempt from taxes. The tax experts explained that proceeds from the sale of Indian mutual fund investments are not taxable in India under the India-UAE Double Taxation Avoidance Agreement. It was also noted that the individual’s residency status in the UAE covers the entire tax period, including the period of travel to India, allowing for the exemption on capital gains from the sale. To claim the exemption, the individual must file Form 10F online on the Indian tax portal.

In conclusion, tax experts provided guidance on tax implications for NRIs returning to India and highlighted the importance of understanding the specific agreements and laws governing foreign income and investments.