Refer to DTAA to avoid paying tax on same income twice

I have been an Australian citizen for more than 25 years and I also hold an OCI (Overseas Citizen of India) card. I’m considered an Australian resident for income tax purposes in Australia. However, I travel to India regularly to visit family and also carry out charity work in my ancestral village such as renovating the school, hospital, etc. I’m getting close to retirement and will be eligible to draw a tax-free income from my pension fund here in Australia when I retire.

When I retire, I also want to spend more time (three to four months a year) in India with my charity work (while continuing to be an Australian resident). I will do this from my personal funds and do not wish to claim any tax deductions.

However, I have been warned by my friends in India that if I keep visiting the country, I will become an Indian resident (for income tax purposes) and will be liable to pay tax on my Australian income too. Is that correct?

I have Indian bank accounts (non-resident ordinary accounts) and small investments in Indian shares and mutual funds. I have a PAN card and file income tax returns and pay income tax in India in the years I am liable to pay tax. It is not every year as my Indian taxable income is generally low.

Will I become an Indian resident for tax purposes if I continue to visit India for three to four months a year (or even longer)?

I have read the definition of resident and ordinarily resident (ROR), resident but not ordinarily resident and non-resident on various websites and on the face of it, looks like I might become a ROR if I continue my visits. So, I have stopped visiting India temporarily until I get some clarity on my tax status.

—Name withheld on request

Firstly, note that your residential status has to be determined for each financial year (FY). You can test your residential status in the following manner. You must meet any of the following conditions and both the additional conditions.

a) You are in India for 182 days or more in the FY; or b) you are in India for 60 days or more in the FY and 365 days or more in the four FYs immediately preceding the relevant FY.

In the above condition, the period of 60 days is substituted by 182 days for a citizen of India or a person of Indian origin who lives outside India and comes to visit India in the said FY. The same applies for a citizen of India who leaves India in the said FY for the purpose of employment outside India or as a member of a crew of an Indian ship.

Additional conditions: You are a resident in India in two of the 10 FYs immediately preceding the relevant FY; and you are in India in the seven years immediately preceding the relevant FY for 729 days or more.

If you meet any of the first set of conditions and both the additional conditions, you shall be considered a resident in India. If you meet any of the first conditions but do not meet the additional ones, you shall be considered a resident but not ordinarily resident in India. If you do not meet any of the first conditions, you shall be a non-resident in India.

Based on the above, you can determine your residential status. Should you become a resident by virtue of the above, you can avoid paying tax on the same income twice by referring to the Double Tax Avoidance Agreement (DTAA) between the two countries.

Archit Gupta is founder and CEO, ClearTax.