Foreign Income of NRIs Not Taxable in India If Residential Status Is Non-Resident – ITAT Chennai

In a landmark judgment offering major relief to Non-Resident Indians (NRIs), the Income Tax Appellate Tribunal (ITAT), Chennai Bench has ruled that foreign income cannot be taxed in India if the individual qualifies as a Non-Resident under Section 6 of the Income-tax Act, 1961, even if the individual holds a senior or controlling position abroad.

This ITAT Chennai ruling on NRI taxation puts to rest a frequently litigated issue where the Income Tax Department attempts to tax overseas income of NRIs by disputing their residential status, especially in cases involving senior professionals, founders, presidents, or key managerial personnel working abroad.

Why This ITAT Chennai Decision Is Important for NRIs

Search trends show NRIs frequently ask:

• Is foreign income taxable in India for NRIs?
• Can India tax overseas salary of NRI?
• Does senior position abroad affect NRI status?
• Can foreign bank accounts be taxed in India?

This judgment directly answers all of the above — in favour of NRIs.

Case Background: NRI Residential Status Dispute

The taxpayer:

• Was an Indian citizen working in the United States
• Left India for employment abroad
• Filed Indian income tax returns as Non-Resident (NRI)

The Income Tax Department:

• Conducted a search under Section 132
• Passed assessments under Section 153A
• Treated the assessee as a Resident
• Taxed global income, including:
  • Foreign salary
  • Overseas bank deposits
  • Foreign credit card expenses

The sole basis?
The assessee held a senior managerial position in a foreign organisation.

Core Legal Question Before ITAT Chennai

Can overseas income be taxed in India merely because an NRI holds a senior or controlling position abroad?

And:

Is residential status under Indian tax law dependent on designation or days of stay?

ITAT Chennai Verdict: Residential Status Depends Only on Days of Stay

The ITAT Chennai categorically held that:

• Residential status under Section 6 is purely objective
• It depends only on physical presence in India
• Designation, influence, or managerial control has no relevance

Residential status is determined by number of days stayed in India, not by job title.

Explanation 1(a) to Section 6 – Strongly Reaffirmed

The Tribunal confirmed that Explanation 1(a) to Section 6(1) applies when:

• An Indian citizen leaves India for employment outside India
• Stay in India is less than 182 days

Important clarification by ITAT

• The term “employment” includes senior executives
• There is no distinction between employee and president / director / CEO
• What matters is a contractual employment relationship

Does senior position abroad affect NRI status?

Answer: No.

Foreign Income Not Taxable in India for NRIs – Legal Position Reaffirmed

Once Non-Resident status is established, the ITAT held:

• Foreign salary earned outside India is not taxable in India
• Foreign bank account deposits are not taxable in India
• Overseas credit card expenses are not taxable in India
• Global income of NRIs cannot be taxed in India

This flows directly from Section 5 of the Income-tax Act, which limits Indian taxation for NRIs to:

• Income received or accrued in India
• Income deemed to accrue in India

Can Foreign Income Be Taxed During Search or Reassessment?

The ITAT also clarified an important point for NRIs facing notices:

• Even in search assessments under Section 153A
• Income must be legally taxable
• Foreign income of NRIs cannot be taxed merely due to a search

This protects NRIs from arbitrary taxation of overseas income.

Importance of Documentation for NRI Residential Status

The assessee succeeded because of strong documentary evidence, including:

• Foreign employment contract
• Employment visa
• Overseas tax returns
• Employer filings showing salary paid
• Passport & travel records

takeaway for NRIs

Proper documentation is the strongest defence against wrongful NRI taxation of foreign income in India.

Why This ITAT Ruling Is a Landmark for NRIs  

• Stops aggressive taxation of overseas income
• Protects senior professionals working abroad
• Clarifies law on NRI residential status
• Reduces litigation on foreign income taxation
• Strengthens judicial consistency for NRIs

Key Takeaways

• Residential status under Income Tax Act depends only on days of stay
• Senior designation does not affect NRI status
• Overseas income of NRIs is not taxable in India
• Foreign salary earned abroad is outside Indian tax net
• Indian tax department cannot tax global income of NRIs
• Explanation 1(a) to Section 6 protects NRIs working abroad

Frequently Asked Questions

Is foreign income taxable in India for NRIs?

No. If you qualify as a Non-Resident under Section 6, foreign income is not taxable in India.

Can India tax foreign salary of an NRI?

No. Salary earned and received outside India by an NRI is not taxable in India under NRI services and taxation rules.

Does holding a senior position abroad make me resident in India?

No. Residential status depends on days of stay in India, not job title.

Can foreign bank accounts be taxed in India?

Not if you are a Non-Resident and the funds are foreign-sourced.

Can Income Tax Department tax global income of NRIs?

No. Global income is taxable in India only for Residents, not NRIs.

NRI Tax Advisory by Dinesh Aarjav & Associates

Dinesh Aarjav & Associates is a 25+ year old Chartered Accountancy firm specialising in:

• NRI residential status planning
• Taxation of foreign income
• India-US tax advisory under DTAA India USA, India-UK & India-Canada tax advisory
• NRI tax litigation & reassessment
• Cross-border tax compliance

We have advised thousands of NRIs globally, including those involved in NRI returning to India, on protecting their overseas income from unlawful taxation in India.

Conclusion: Strong Judicial Protection for NRIs

This ITAT Chennai ruling is a decisive judicial shield for NRIs, reaffirming that:

If you qualify as a Non-Resident, your overseas income cannot be taxed in India — irrespective of your seniority abroad.

Also Read: 

Huge Relief for NRIs: ITAT Ahmedabad Quashes ₹66.95 Lakh Addition Under Section 69A in Property Investment Case | Fresh Assessment Ordered After Reopening u/s 148

ITAT Mumbai’s Landmark Ruling: Section 69 Cannot Override Section 5(2)

Breaking NRI Tax Update: ITAT Delhi Cancels Penalty on NRI Because Income Tax Notice Was Never Served

ITAT Mumbai Clarifies: Once Form 10EE Filed, Section 89A Relief Automatically Applies Every Year