Two things follow from a status counted in days. The first is that it can change without any change in circumstances — a year with more travel can move a person between categories, and the position established for one year says nothing about the next. The second is that disclosure and taxability are separate questions: foreign assets and foreign income can carry a reporting obligation in the return even in a year when no tax is payable on them.
This article covers what counts as foreign source income, how the three residency categories are determined, what has to be disclosed even where the income is not taxable, and how relief against double taxation is claimed.
Key Takeaways
Residential status — ROR, RNOR or NR — determines whether foreign income is taxable in India, and it is recomputed every year
A resident other than an RNOR who fails to disclose a foreign asset, financial interest or foreign-source income faces a penalty of ₹10 lakh under the Black Money Act, 2015
Disclosure and taxability are separate questions: income that is not taxable can still be disclosable
Relief against double taxation is given by the credit method, and a resident claims foreign tax credit by filing Form 67 with evidence of the foreign tax paid
The Schedule FA reporting period and the income tax year do not align, which is a frequent source of filing error
What is Foreign Source Income
Foreign source income covers salary, business profits, dividends, interest, royalties and capital gains arising outside India. Indian tax law applies two overlapping principles: a residence rule and a source rule.
For a resident, total income includes everything received in India, everything accruing in India, and income accruing outside India as well. A non-resident is generally taxed only on Indian receipts and accruals. That is the whole of the difference, and it is why the residency determination comes before every other question. The governing provisions sit with the Income Tax Department.
There is also a deeming rule. Income can be treated as taxable in India even where it technically arises abroad, which applies to:
Income connected to an Indian business, property or asset
Salary for services rendered in India
Certain interest, royalty and technical fees
Specified dividend income
The place of receipt matters as much as the place of earning. Money credited directly to an Indian account is taxable on that basis, and foreign origin alone does not change it.
Residential Status and Its Impact on Tax Liability
India recognises three categories, and each is taxed on a different base:
Resident and Ordinarily Resident (ROR) — taxed on global income
Resident but Not Ordinarily Resident (RNOR) — taxed principally on India-linked income
Non-Resident (NR) — taxed on Indian income only
How Residency Is Determined
The basic test is presence: 182 days or more in India during the year, or 60 days in the year plus 365 days across the four preceding years. An Indian citizen or person of Indian origin visiting India has the 60-day limb relaxed to 182 days, and that relaxation tightens to 120 days where their income other than from foreign sources exceeds ₹15 lakh.
Being resident is not the end of it. To be ROR rather than RNOR, both of the following must also hold:
Residency in at least 2 of the 10 preceding years, and
Presence in India for at least 730 days in the 7 preceding years
Failing either produces RNOR status even where the year's presence makes you resident — and that classification is what determines how much foreign income India can reach.
Tax Treatment by Category
| Status | Foreign Salary | Foreign Investment Income |
|---|---|---|
| ROR | Fully taxable in India | Fully taxable in India |
| RNOR | Generally exempt, unless from a business controlled from India | Generally exempt |
| NR | Exempt | Exempt, subject to the deeming rules |
Non-residents are not entirely outside the net. Interest, royalties, technical fees and capital gains on specified Indian assets remain taxable regardless of residential status.
An illustration: a salary of the equivalent of USD 120,000 earned working remotely for a US employer. Held by an ROR, the whole of it enters Indian taxable income at slab rates. Held by a non-resident, it is outside Indian tax — provided both the work and the receipt occur outside India. The income is identical; the status is what differs.
Status is also not fixed. It moves with travel, secondments and relocation, which means the determination belongs at the start of a year rather than at filing, when the days have already been spent.
Reporting Foreign Income and Assets in Your ITR
Disclosure and taxability are separate obligations, and income that is not taxable can still be disclosable. Two schedules govern this:
Schedule FSI — foreign-source income and the relief claimed against it, for residents
Schedule FA — foreign assets, accounts and beneficial interests
Assets disclosable under Schedule FA include:
Foreign bank accounts
Foreign equity, ESOPs and RSUs
Immovable property abroad
Foreign insurance policies
Custodial and brokerage accounts
The timing mismatch: Schedule FA reporting follows the calendar year, while income is taxed on the financial year running April to March. The two periods do not coincide, and filers who assume they do report the wrong window.
RNORs and non-residents are outside the Schedule FA obligation; it applies to RORs.
The Cost of Getting It Wrong
Under the Black Money Act, 2015, a resident other than an RNOR who fails to disclose a foreign asset, financial interest or foreign-source income faces a penalty of ₹10 lakh. There is a narrow exception: foreign assets other than immovable property are excluded where their aggregate value falls below ₹20 lakh.
The return form matters here too, because not every form supports the schedules:
ITR-2 where there is foreign income or assets but no business income
ITR-3 where there is business or professional income as well
ITR-1 and ITR-4 do not carry the FA and FSI schedules at all, so filing on one of them where disclosure was required is itself a defect
The department has also run outreach — its NUDGE campaign — using data received under international information-exchange agreements to contact taxpayers who appeared to hold undisclosed foreign accounts or assets, with an opportunity to correct filings before penalty proceedings.
DTAA and Claiming Foreign Tax Credit
A Double Taxation Avoidance Agreement exists because the same income can otherwise be taxed twice: once where it is earned and again in India where the taxpayer is resident.
India gives relief by the credit method. Where a treaty exists, relief follows the treaty; where none exists, unilateral relief is available under domestic law. Where the treaty and domestic law diverge, the more favourable to the taxpayer generally applies.
Computing Foreign Tax Credit
The credit is the lower of:
The tax payable on that income in India, or
The tax actually paid on it abroad
It is computed separately for each income source and each country. Credits cannot be pooled across jurisdictions, so an excess in one country does not offset a shortfall in another.
Claiming It: Form 67 and TRC
Two documents do different jobs, and they are frequently conflated:
Form 67, filed within the prescribed time, is how a resident claims credit in India for foreign tax paid. It is not the route by which someone resident abroad claims relief in their country of residence — that follows the rules of that country
A Tax Residency Certificate from the foreign tax authority evidences residency where treaty relief is claimed
Evidence of the foreign tax actually paid — a certificate or equivalent statement — supports the amount
India's treaty network covers most of the destinations Indian professionals work in, including the US, UK, Singapore and the UAE. What relief a treaty gives, and on which categories of income, differs between them — the existence of a treaty does not by itself determine the rate.
Tax Rates on Common Foreign Income Categories
With residency and disclosure settled, the rates follow:
Foreign salary and business income: taxed at slab rates as part of global income for an ROR, with no special treatment
Capital gains on foreign shares: long-term after 24 months, taxed at 12.5% without indexation; short-term taxed at slab rates
Foreign dividends: taxed as income from other sources at slab rates
On dividends from US shares: the India-US treaty specifies withholding rates for dividends, and it distinguishes a portfolio investor from a company holding a substantial voting interest — the two are not the same rate, and the lower figure commonly quoted applies to the corporate case rather than to an individual. The withholding suffered abroad can then be set against Indian tax through the credit mechanism above, subject to the lower-of rule. The operative rates are in the treaty text itself.
Why Professional Tax Guidance Matters
Residency moves with travel. The reporting periods do not align. What relief a treaty gives varies by country and by category of income. Each is manageable alone; together they are where filing errors compound, and the exposure under the Black Money Act is a fixed penalty rather than a proportionate one.
That work — determining residential status on the year's facts, computing the credit country by country, completing Form 67 and the FA and FSI schedules — is a chartered accountant's work, and representation before the tax authorities sits there too.
Cambridge Wealth is an AMFI-registered Mutual Fund & SIF Distributor, ARN-172841, APMI Registration No. APRN-01683. What it can do is support the investment-side documentation those computations rest on — capital gains statements per folio, tax-residency documents and Form 10F, and records of the source of funds for each account — coordinated across the AMCs, banks and registrars that each hold part of the record. It also presents scheme information with holding periods and exit terms visible, so the tax consequence of a redemption is knowable before it is triggered.
Every scheme considered for the research universe passes a documented 108-point research framework across 5,000+ Indian investment products. If your residential status is likely to change, the returning-to-India overview is here.
Frequently Asked Questions
Is my foreign income taxable in India?
That depends on residential status. A Resident and Ordinarily Resident is taxed on global income including foreign earnings; a non-resident is generally taxed only on India-sourced income, and an RNOR principally on India-linked income.
What happens if I do not disclose a foreign asset?
A resident other than an RNOR who fails to disclose a foreign asset, financial interest or foreign-source income faces a ₹10 lakh penalty under the Black Money Act, 2015. Foreign assets other than immovable property are excluded where their aggregate value is below ₹20 lakh.
How do I avoid the same income being taxed twice?
Through treaty relief and the foreign tax credit. A resident claims the credit by filing Form 67 with evidence of the foreign tax paid, and a Tax Residency Certificate where treaty relief is claimed; the credit is the lower of the Indian tax and the foreign tax on that income.
Which return form do I need?
ITR-2 where there is foreign income or assets without business income, and ITR-3 where there is business or professional income as well. ITR-1 and ITR-4 do not carry the FA and FSI schedules.
I am an NRI. Do I have to disclose my foreign income?
Generally no. A non-resident is taxed on income accruing or arising in India, and the Schedule FA obligation applies to RORs — so purely foreign income and assets are typically outside the disclosure requirement.
I spent 150 days in India last year. Where does that leave me?
It depends on the four preceding years and on your Indian income. The 60-day limb combined with 365 days across four preceding years can make you resident, though an Indian citizen or person of Indian origin visiting India has that relaxed — to 182 days, or to 120 days where income other than from foreign sources exceeds ₹15 lakh.
Disclosures
Cambridge Wealth is the consumer brand of Baker Street Fintech Private Limited, an AMFI-registered Mutual Fund & SIF Distributor, ARN-172841, APMI Registration No.: APRN-01683. We act in the capacity of an AMFI-registered Mutual Fund & SIF Distributor and provide scheme information only. Cambridge Wealth does not determine residential status, compute tax, prepare or file returns, advise on treaty positions, or represent taxpayers; those are performed by your own chartered accountant.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Past performance is not indicative of future results and there is no assurance that a scheme's objective will be achieved.
A Specialised Investment Fund involves a higher degree of risk than a typical mutual fund and requires a minimum investment of ₹10 Lakhs.
Residency thresholds, penalty amounts, exemption limits, rates, form requirements and treaty provisions referred to here are as notified by the relevant authority and are subject to amendment. A new Income-tax Act applies from 1 April 2026 and section numbering has changed with it; the primary source linked above carries the current position.
