A graphic designer and Overseas Citizen of India (OCI) cardholder, who arrived in India in July 2025 for regional film projects, has raised a crucial tax query. The individual, who plans to stay through the financial year, continues consulting for international clients and receives payments directly into a foreign bank account. The central question is whether these fees become taxable in India even if the money is not transferred to an Indian account.
Determining Tax Liability: The Crucial Role of Residential Status
The first and most critical step, according to tax experts, is to determine the individual's residential status for the financial year 2025-26 under the Income-tax Act, 1961. If the person's stay in India during the financial year totals 182 days or more, they will be classified as a resident for tax purposes. However, a complete conclusion requires more details about their stay history in previous years to ascertain if they would be a Resident and Ordinarily Resident (ROR) or a Resident but Not Ordinarily Resident (RNOR).
The distinction between ROR and RNOR is vital. For an ROR, the scope of taxable income is global. It includes all income, whether it accrues in India or abroad, regardless of where it is received. In contrast, for an RNOR, income that accrues or arises outside India is generally not taxable in India, unless it is derived from a business controlled from India or a profession set up within the country.
Place of Service Renders the Income Taxable in India
Despite the residential status complexity, the core of this specific case hinges on another rule. Under Indian tax law, income from services is considered to accrue at the place where those services are physically performed. Since the consultant is rendering services while physically present in India, the corresponding income is deemed to accrue in India. This makes it taxable in India, irrespective of the client's location (foreign entity) or the place of receipt (foreign bank account).
This tax treatment applies whether the individual is an ROR or an RNOR. The determinative factor is the place of accrual, which in this scenario is unequivocally India.
Disclosure Requirements and FEMA Considerations
Such foreign-sourced income earned from India must be disclosed in Schedule FSI of the Indian income tax return. If tax has been paid on this income in a foreign jurisdiction, the taxpayer can claim a foreign tax credit in India by reporting it in Schedule TR.
Furthermore, if the individual is classified as an ROR, they must also disclose this foreign income and any specified foreign assets in Schedule FA. This requirement is waived for RNOR individuals.
Separately, it is essential to evaluate residential status under the Foreign Exchange Management Act (FEMA), 1999. The FEMA status, which can differ from tax residency, determines whether an individual is permitted to retain foreign income outside India or has an obligation to repatriate it to India. This is an independent compliance layer beyond income tax provisions.
In summary, for the OCI cardholder consultant working from India, the fees from foreign clients are taxable in India because the services are performed there. The residential status (ROR/RNOR) affects the disclosure formalities and the taxation of other foreign income, but not the taxability of this particular consulting income. Professional advice is recommended to accurately determine both tax and FEMA residency statuses for comprehensive compliance.
