The Indian ex-pat community (i.e. Indians who live abroad or NRIs) is a very big one. They might be working abroad, studying in a foreign university, or running a business outside of India. Many Indians settle abroad post-retirement.
There have been some changes in the Income Tax Act for NRIs which have left many Non-Resident Indians somewhat confused that who is NRI?We attempt to explain the changes and their effects in this article.
Must Check – NRI Checklist
Who is NRI?
For this first, let us look at the definition of a resident as per the Foreign Exchange Management Act (FEMA) –
A person who resides in India for more than 182 days in the current financial year and
- does not work outside of India, does not conduct business outside of India nor remains outside India for an uncertain period for any other purpose.
- does not fulfill the condition that they stay in India or have come to India for employment, business, or any other such purpose which makes the number of days of stay uncertain.
A person who DOES NOT satisfy these conditions is treated as an NRI by the FEMA Act.
Who is OCI?
An individual is considered an Overseas Citizen of India (OCI) if –
- They are adults and satisfy one of the following conditions –
- They became a citizen of India on or after 26 Jan 1950
- They were eligible to become a citizen of India on 26 Jan 1950
- They belonged to a territory that became part of India after 15 Aug 1947
- They are a child or a grandchild or a great-grandchild of such a citizen
- A minor who is a child of an Overseas Citizen of India as per the conditions above is also considered an OCI
- A minor who has either parent as a citizen of India or both parents as citizens of India
- A person of foreign origin who has married a citizen of India or the spouse of an OCI Cardholder who is of foreign origin provided the marriage is registered and is existent for a continuous period of not less than two years. This is not applicable to persons who are or have been citizens of Bangladesh or Pakistan.
You have to consider the conditions mentioned above to decide on how you are going to undertake your banking activities and investments.
For example, if your status is ‘NRI’ based on the criteria above, and you want to invest in shares, you would need to open a Demat account under the Portfolio Investment Scheme (PIS) and not just the usual Demat account.
If you are classified as a Non-Resident Indian or OCI as per the definitions above, you cannot open a new PPF account.
There have been some amendments in the Income Tax Act about the taxation of income of NRIs.
Read More – About OCI
Who is NRI – Income Tax Act
Those who don’t fall under these definitions are NRIs.
Must Read – NRI Frequently Asked Questions And Answers
Indian Income below 15 Lakh
“An individual is a resident in India if he is in India for a period of : 182 days or more during the previous year.”
Indian Income above 15 Lakh
Who am I?
Let us look at the basics first. There are four status applicable to individuals –
The status Resident and Resident Ordinarily Resident are applicable to residents.
Resident(RNOR) and NRI apply to NRIs or NRIs who have recently returned to India.
We will look at Resident & Not Ordinarily Resident (RNOR) and NRI in more detail.
Read – Myths and Facts About NRI Status
Who is Non-Resident Indian
There are multiple scenarios to be considered –
Scenario 1
An Indian Citizen or Person of Indian Origin (PIO) who is outside India, comes to India to visit, and has his gross income (In India and abroad) from a business controlled or a profession set up in India NOT exceeding Rs. 15,00,000 during the previous year.
The individual is considered as a resident in India if they are in India for
182 days or more during the previous year.
They will have to file income tax returns as resident Indians.
Scenario 2
An Indian Citizen or Person of Indian Origin (PIO) who is outside India, comes to India to visit, and has his gross income (In India and abroad) from a business controlled or a profession set up in India exceeding Rs. 15,00,000 during the previous year.
The individual is considered as a resident in India if they are in India for
182 days or more during the previous year. OR
120 days or more during the previous year and 365 days or more during the four years preceding that previous year.
They will have to file income tax returns as resident Indians.
The individual is deemed to be a Resident but not Ordinarily Resident (R but not OR) in India if they are in India for a period of
More than 120 days but less than 182 days during the previous year AND 365 days or more during the four years preceding that previous year.
Scenario 3
An Indian Citizen who leaves India for employment abroad or leaves India as a member of the crew of an Indian Ship.
Ans: This person will be considered as a resident if they are in India for a period of 182 days or more during the previous year.
Must Check – Simple Tax Strategies for NRIs Everyone Should Know
Scenario 4
An Indian citizen who is in India for a period of 182 days or more during the previous year OR
for 60 days or more during the previous year AND 365 days or more during the
four years preceding that previous year is considered as a resident if they DO NOT satisfy the following conditions –
- Leaves India for employment abroad or
- Leaves India as a member of the crew of an Indian ship or
- As an Indian Citizen or as a Person of Indian Origin (PIO), resides in India and comes on a visit to India.
This can be applicable to Indians who have retired abroad
Scenario 5
Individuals satisfying the following conditions shall be deemed to be Resident but not Ordinarily Resident (R but not OR) in India.
- The person is a citizen of India and was a Non-Resident Indian for 9 out of the last 10 financial years. The person has stayed in India for less than or equal to 729 days in the 7 financial years preceding the current year.
- The person is not liable to tax in any jurisdiction/country for any reason
- The person has income in India and abroad from a business controlled or a profession set up in India exceeding Rs. 15,00,000 during the previous year.
There has been an exception for the financial year 2019-20 because of the COVID-19 pandemic
The time that an individual spent in India between 22 March 2020 and 31 March 2020 (or the date on which they left India before 31 March 2020) will not be taken into account when determining their tax residency. If an individual was quarantined on or after 1 March 2020, such a quarantine period (until 31 March 2020) will not count when determining their tax residency.
Some common questions
- I am an NRI who wants to buy a flat in a cooperative housing society in Delhi. What tax matters should I be aware of?
- I have been living with my family in the UAE for the last five years. I have a business in the UAE. I spend around one month in India on a yearly basis. Should I pay tax in India on my business income in UAE?
It is important to know your residency status for financial matters such as banking, investing, and filing IT returns.
If you have any questions regarding your Non-Resident Indian – add them in the comment section.
Published onFebruary 1, 2022
