Non-Resident

A non-resident is defined by subtraction. Run the section 6 day-count tests; if none of them is satisfied, the person is non-resident for that previous year.

The consequence is the narrowest tax net of the three statuses. India taxes what happens in India, and stops there.

The workbook's framing is worth memorising: a person who is a non-resident in India — and may well be a citizen of India — is liable to pay tax only on his Indian income.

The scope. For a non-resident, only two categories are taxable:

• income received or deemed to be received in India in the previous year, by him or on his behalf; and
• income that accrues or arises, or is deemed to accrue or arise, to him in India during the year.

Everything else is outside. Income accruing outside India is not taxable even if it is derived from a business controlled from India or a profession set up in India — and that is precisely where the non-resident differs from the RNOR, who is taxed on that slice.

Rates that differ for a non-resident. The workbook flags several:

• Dividend from a mutual fund or company received by a non-resident is taxable at a special rate of 20% (10% from an IFSC unit) plus surcharge and cess, subject to the DTAA — and unlike a resident, the non-resident cannot deduct any expenditure from it, nor claim Chapter VI-A deductions (sections 80C to 80U) against it even under the old regime.
• Section 115F allows a non-resident Indian a capital gains exemption where the net consideration from specified foreign-exchange assets is reinvested within 6 months in shares, debentures or deposits of an Indian company or in central government securities. The Capital Gains Account Scheme is not available for this section.

Relief from double tax. A non-resident is exposed to tax in two countries at once. India's network of Double Taxation Avoidance Agreements answers that: where a non-resident is eligible for DTAA benefits, he is taxed at the rate in the relevant DTAA or under the Income Tax Act, whichever is more beneficial to him.

Mr Rao is a non-resident for FY 2024-25, resident in the United States. In that year he has:

The last row is the one the paper hunts for. Had he been RNOR instead of non-resident, that Rs 8,00,000 would have been taxable in India. As a non-resident it is not.

On the dividend: a resident earning the same Rs 4,00,000 who had borrowed to invest and paid Rs 1,50,000 of interest could deduct up to 20% of the dividend, or Rs 80,000, and be taxed on Rs 3,20,000 at slab. Mr Rao deducts nothing and pays 20% on the full Rs 4,00,000 = Rs 80,000, plus surcharge and cess — unless the India-US DTAA offers him a lower rate, in which case he takes whichever is more beneficial.

Chapter 7, sections 7.4 and 7.5 with Table 7.1, establishes the status; Chapter 10, section 10.4, and Chapter 11 apply the special rates and DTAA relief. Expect a scope-of-income grid asking which rows are taxable for a non-resident, a dividend question that tests the no-deduction rule, and a DTAA question whose answer is always "whichever is more beneficial to the assessee".

• Non-resident is not a category you elect into. It is what is left when every residency test fails.
• An Indian citizen can be a non-resident. Citizenship does not decide status.
• The RNOR/NR difference is one row: foreign income from a business controlled from India or a profession set up in India. RNOR pays; NR does not.
• A non-resident gets no expense deduction against dividend, and no Chapter VI-A deduction against it — not even under the old regime.
• DTAA gives the more beneficial of the two rates, never a mandatory DTAA rate.
• Section 115F requires reinvestment within 6 months and the Capital Gains Account Scheme is not available for it.
• A deemed resident under 6(1A) is not a non-resident even if he never set foot in India that year — he is RNOR.