Are gratuity, depart encashment acquired by an NRI taxable in India?

A non-resident Indian (NRI) receives gratuity and depart encashment on termination of his job contract. Is this quantity taxable in India?

— Name withheld on request

The taxability of an revenue in India is determined by the residential standing in India, supply of revenue, and place of receipt of revenue. Residential standing is decided on the premise of the bodily presence of a person in India throughout a monetary 12 months (FY) and the previous 10 FYs. For Indian residents, even when they don’t turn out to be residents primarily based on bodily presence in India, they’ll nonetheless turn out to be Resident however Not Ordinarily Residents (RNOR) primarily based on the absence of legal responsibility to pay tax in some other nation or territory by cause of domicile or residence or some other standards of comparable nature, if India sourced revenue exceeds ₹15 lakh. Residential standing is dynamic and wishes recent willpower for every FY.

An particular person qualifying as ‘Resident and Ordinarily Resident’ (ROR) is taxable on his worldwide revenue in India and is required to report all overseas property within the India income-tax return (ITR). Also, the revenue earned from such overseas property throughout the related FY together with the character of revenue and head of revenue beneath which such revenue has been provided to tax within the India ITR must be reported in relation to every overseas asset.

An particular person qualifying as ‘Non Resident’(NR) or  RNOR is taxable on the next incomes: revenue accruing or arising in India; revenue deemed to accrue or come up in India; revenue acquired or deemed to be acquired in India; revenue accruing or arising exterior India if the revenue is derived from enterprise managed in, or career setup in, India (for RNOR).

Salary for companies rendered in India is taxable in India regardless of residential standing. Salary consists of gratuity and depart encashment. Accordingly, gratuity and depart encashment, to the extent referring to companies are rendered in India, is taxable in India. However, in case of a person qualifying as NR beneath the I-T legislation, wage acquired exterior India for companies rendered exterior India just isn’t taxable in India.

Additionally, you might declare the next exemption

For Leave encashment: This quantity is exempt topic to the least of the next: 

A sum of ₹3 lakh; depart encashment really acquired; 10 months’ wage (fundamental common wage of final 10 months); or money equal of unavailed depart calculated on the premise of most 30 days depart for yearly of service.

For gratuity: This quantity is exempt topic to the least of the next: 

Half month’s wage for every accomplished 12 months of service (Calculation for half month’s wage will range if coated beneath Payment of Gratuity Act, 1972); a sum of ₹20 lakh; or precise gratuity acquired. 

Salary consists of dearness allowance, if the phrases of employment so present, however excludes all different allowances and perquisites.

Sonu Iyer is tax companion and other people advisory companies chief, EY India.

Subscribe to Mint Newsletters

* Enter a legitimate e-mail

* Thank you for subscribing to our publication.

Never miss a narrative! Stay linked and knowledgeable with Mint.
Download
our App Now!!