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By Vipul Jain
NRI stands for Non-Resident Indians. A person of Indian origin residing abroad is known as an NRI. The Income Tax Act, of 1961, gives different tax rules for Indian residents and NRIs. People of Indian origin are viewed as residents for a fixed duration when they live in India. This act gives the definitions of residents and NRIs for tax purposes. Being an NRI is not just about living outside India. It is a legal status with some criteria that have some future effects. Especially, regarding taxation. This article discusses NRI status, taxation, and RNOR. Learn how taxable income is calculated according to your status and who is an RNOR.
The Income Tax Act and the Reserve Bank of India have different definitions of an NRI. According to the RBI, the definition of an NRI focuses on the purpose of stay. Wherein, according to the Income Tax Act, the definition of an NRI is decided by the actual length of stay in India. So, to learn about who is an NRI in India, one must consider both these viewpoints.
A person is an NRI, if they have not stayed in India for more than 182 days during the preceding financial year.
A person is an NRI if they have stayed in India for less than 182 days in the preceding financial year. Or, if they have been in India for less than 60 days during the previous year. Also, 365 days or less during the past four years.
For example, if a girl has lived in the USA for 200 days in the financial year 2022-2023. She will be considered an NRI by both RBI and the Income Tax Act.
The two main laws that govern and define the rules for NRIs in India are as follows:
It governs the tax responsibilities of the NRIs.
It governs all the transactions and investments like opening bank accounts of an NRI.
To check how much tax you need to pay in India. It is vital to see what your residential status is in India. Remember that the residential status has to be checked for every last financial year.
If you have traveled or changed home. Also, If you are a non-resident for one year then for next year, and afterward you must check your NRI status again. Your tax responsibility in India will be determined by this status. Before we learn about who is an NRI, let's first learn about who is a resident Indian.
An individual will be considered a resident in India for income tax purposes if:
He/she has been in India for 182 days or more during the fiscal year (financial year). or,
If he/she is in India for a minimum of 365 days during the 4 years previous that year and at least 60 days in that year.
Note: These days can be a single visit or can be counted over a lot of visits to India.
If you are an Indian citizen and you leave India to seek a job outside India, or as a member of the crew on Indian an ship. In such case, your status will have an NRI status (Non-resident Indian). If you stay in India for less than 182 days in the previous year. So, if you are an Indian national and you reside outside India for 182 days or more, you will have the NRI status.
In case, an Indian citizen or a person of Indian origin, who stays outside India and has come for a visit to India during the previous year. Where the total income other than the income from foreign sources is more than Rs 15 lakhs. Such a person will be considered a resident of India for income tax purposes.
He/ She has been in India for 182 days or above during the fiscal year. or,
If he/she is in India for a minimum of 365 days during the 4 years previous that year. Also, at least 120 days in the previous year.
Regardless of the conditions mentioned above for being a resident. There is also another concept which is called deemed resident.
A person who is an Indian citizen and has a complete income ( other than foreign sources) is more than Rs 15 lakhs during a fiscal year. He/she will be deemed to be resident in India in that year. Only if he/she is not a tax resident of some other country.
If you do not meet the conditions mentioned above for a person to be known as a resident in India. You will be considered as a Non-resident Indian (NRI). It means if you stay in India for less than 182 days then you will have NRI status.
In the case of an Indian citizen and a member of the crew of a ship. The period or periods of stay in India, in respect of an eligible trip shall be calculated as follows:
The number of days for a stay in India for such a person must not include the days. From the starting date of the continuous discharge certificate. Also, ending on the end date of this document, as signed off on the discharge certificate.
The continuous discharge certificate must be according to the merchant shipping. (Continuous discharge certificate cum seafarer's identity document). Rules, 2001 formed under the Merchant Shipping Act of 1958.
This certificate must not be for a trip, which starts from any port in India and has its destination from any port outside India. Or, which starts from any port outside India and has its destination at any port in India.
The above-mentioned rule applies from 1 April 2015. This rule applies to finding out the residential status of an Indian citizen as a crew on Indian ships. Starting from the financial year 2015-2016. Such crews are considered as an NRI for income tax purposes. Where they must have spent less than 182 days in India.
When the stay of 182 days is calculated, the whole period mentioned in the continuous discharge document will be excluded. Even if, the ship may have been on Indian coastal waters during its journey.
The number of days outside India of such crew working on Indian ships gets counted only from the day when the Indian ship crosses the coastal boundaries of India. This increase in days applies to you also, if you are an Indian national or a PIO and you live outside India and you come to visit India.
The aim behind reducing the minimum number of days to 182 is to save your taxability. So, you don't get taxed as a resident Indian if you plan to visit Indian for an extended stay. To visit family, friends, or other obligations and you end up staying for more than 2 months.
Other than resident and NRI status there is a third category also. Resident But Not Ordinarily Resident (RNOR). After spending many years abroad, if you moved back to India recently then you may fall under the RNOR category. Let's learn in-depth about who is an RNOR (Resident But Not Ordinarily Resident).
If you fulfill any one of the below-mentioned conditions, you will be considered as an RNOR in a year.
If you are an NRI, any income that is earned in India is taxable in India. Income earned outside India is not taxable.
The Salary of a Non-resident seafarer for services outside India on a foreign ship will not be included in the total taxable income of the seafarer. Despite this, the salary gets credited to the NRE account of the seafarer with an Indian bank.
For example, a seafarer gives services in Europe and spends not more than 182 days in India. The company sent his salary to an NRE account with an Indian bank. This salary income will not be counted in the total taxable income of the seafarer.
If you are an RNOR (Resident But Not Ordinarily Resident). and you just came back to India. Then you can keep your RNOR status for up to 3 fiscal years after your return back to India. It can help you in a big way as your taxation will be very similar to that of an NRI. So, the income that you have earned outside India (while you may have come back) will continue to not be taxable in India. Hence like an NRI,
You can continue holding this status for 3 years. Although, once you get the status of a resident, all your income earned within and outside India will be taxable in India. Except for any allowance that may be obtainable under the Double Taxation Avoidance Agreement (DTAA) between India and the country from where you got your overseas income.
This is mentioned in Section 9 of the Income Tax Act. (remember that this applies to everyone while considering the income that accrues or arises to them regardless of what residential status they have).
If your answer is YES to any one of the following. Then the law will consider these incomes to have accrued in India.
NRIs can claim some deductions when filling their ITR under section 80C. The deductions are as follows:
NRIs can also get deductions under specific conditions under Section 80G, 80D, and 80TTA. Also, section 54 and section 54EC.
The number of days or day count is important in verifying a person's NRI status. It is vital to keep and maintain a record, mainly if a person travels quite often between India and another country.
For example, Kritika who regularly travels between India and Canada for work should make sure to maintain a diary. It will help her to track the count of days she spent in each country. This will also help her find out her residential status at the end of the fiscal year.
There are several myths about the NRI status such as:
Understanding and maintaining your NRI status is important. It is mandatory to do financial planning and to follow legal obligations. If you keep yourself aware of who is an NRI in India and what is NRI status. It will help you follow the rules and regulations properly. Also, keeping yourself updated about the new rules for NRI and NRI benefits in India will enhance your financial planning.
Yes, an NRI can own a property in India. They can buy both residential and commercial property in India. However, purchasing agricultural land, plantation property, or farmhouses is not allowed.
Yes, an NRI can operate a bank account in India. They can operate NRE (Non-Resident External) and NRO (Non-Resident Ordinary) accounts in India.
No, NRIs are not allowed to cast votes in Indian elections. Unless they are present in their constituency physically.
Yes, NRIs are eligible for Aadhaar cards. If an NRI has stayed in India for 182 days or more in the 12 months after the date of application, then they can apply for an Aadhaar card.
The ITR forms for NRIs vary according to their income sources. ITR-2 is for all types of income except business income. ITR-3 is for business income.
No, NRIs cannot hold, open, or operate a resident account in India. According to the FEMA, NRIs must either close or convert their savings or current account to an NRO or NRE account.
