Non-Resident Indians Status – NRI Status and NRI Taxation

NRI, or Non-Resident Indian, is a person who was born in India but now lives abroad. Indians can be classified as a resident of India or non-resident Indians based on their status of residence in the country. The NRI community plays a significant role in the growth of the Indian economy. The tax implications for an NRI need a more precise understanding; thus, this article aims to provide valuable insights into NRI status and NRI taxation. 

 As per the rule;

• An individual is considered an Indian citizen if the person has stayed in India for 182 days or more during a financial year (FY), or
• If the person has lived in India for at least a year (365 days) in the last four years and at least 60 days in the current financial year

Individuals who do not fall under the above mentioned conditions are considered NRI or Non-Resident Indians. Hence, NRI status differs from the citizenship status of people in India.

When do you attain NRI, PIO, and RNOR Status?

So, when do you get an NRI status? A person attains the NRI status if they are an Indian citizen but stays in the country for fewer than 182 days during a financial year (preceding FY). Or if a person lives abroad for livelihood such as a job, business, or any other purpose for an indefinite period of time.

The crew working on Indian ships are also included in this category. However, in their case, the minimum duration of 60 days is extended to 182 days by the government. As per the new rule applied since 01.04.2015, the status of residence for such crew members is governed by the following:

• Based on Merchant Shipping Rules, 2001, the residence status of such crew is governed by CDC or Continuous Discharge Certificate
• The stay on the ship must be because of an expedition from an Indian shore to somewhere abroad, or vice versa
• The particular days that they stay in the country must exclude the start and end dates mentioned by the CDC

As per the above rule, crew members from India who are stationed on foreign ships because of their job/service for 182 days or more are treated as NRIs.

A person with NRI India status enjoys similar rights and benefits as an Indian resident, such as the right to vote, the right to buy land/property anywhere in India, etc.

How to attain PIO Status?

PIO means Person of Indian Origin. An individual is given a PIO status if they are a citizen of a foreign country but has held an Indian passport earlier by means of:

• Indian parents (either father or mother) who is an Indian citizen, or
• their spouse is an Indian citizen

How to attain OCI Status?

OCI means Overseas Citizen of India. Individuals can hold the OCI status if they have family ties in India. You may note that people with OCI status do not hold many rights like NRIs or other Indian citizens.

How to attain RNOR Status?

RNOR means Resident but Not Ordinarily Resident.

• An individual who is an Indian Resident and who meets any of the two conditions of being an Indian as mentioned above and,
• If the person has held an NRI Status and has lived abroad (for 9 out of 10 years) before the year current FY, OR,
• If the person has lived in India for over 729 days (in the last 7 years) before the current FY

In all the above situations, the individuals are regarded as RNOR.

What Rules Govern the NRI Status?

The new rules for NRI in India (pertaining to the status of residence) are mentioned by the government. However, there are two laws which need understanding. These are related to India’s Income Tax Act (IT Act) and Foreign Exchange and Management Act (FEMA):

• The Income Tax Act Tax takes care of all the tax liabilities of individuals, and
• FEMA takes care of investments and other transactions such as bank accounts, policies, etc.

To understand the NRI status in India in detail, some criteria per the demand of the above laws need understanding. NRI, in terms of income tax laws, differs from FEMA laws.

Section 6 of the IT Act states that an individual is an Indian Resident if:

• The person has lived in India for 182 or more days in the previous financial year, or
• If the person has spent 60 days or more in India during the last financial year as well as an aggregate of 365 days or more during the last four years before the previous year

The second condition doesn’t apply to those who are of Indian origin but who live in a foreign nation and visit India occasionally.

Taxation Rules for NRIs

• If the NRI earns any income in India, it is taxable in India
• If the NRI earns any income outside India, it is not taxable in India
• NRI Crew working on foreign ships will have their salaries excluded from their complete taxable income despite the fact that the salary is transferred to an Indian bank’s NRE account
• An RNOR who returns to India can secure their RNOR status for a period of 3 years after coming back. In their case, the income they earn in India will be taxable, while the income earned abroad is not going to be taxable for at least 3 years post-return
• The income made within and outside India is taxable for NRI who assumes the status of an Indian resident

Terminology to know

1. Income earned in India:

It means any income that is accrued in India. Or any income that is deemed by law as accrued in India.

2. Income accrued in India:

Regardless of the residential status of a person, if the criteria given below are met, the income earned is regarded as ‘accrued in India’ under section 9 of the Indian Income Tax Act:

• Salary received for services offered in India
• Salary of Indian citizens serving outside India and who earn a salary from the government of India
• Dividend paid by an Indian Company irrespective of its location – within or outside India
• Income earned from a business that has any connection in India
• Income earned from a property or asset that has an Indian source
• Capital gains earned from transferring an Indian capital asset
• Royalty, interest, or any fee under specific situations paid by the Central or State Government of India

Points to note

• NRI earning income as capital gains by selling equity shares that are listed under the Indian Stock Exchange will have to pay tax since this income is taxable in India
• If an NRI is under deputation in India and is earning a salary in the country, they will have to pay tax on this income in India
• If an overseas company is operating a branch in India, they need to file IT in India
• NRIs who earn rental income from property located in India are liable to pay tax on this income
• If there is any FTC or foreign tax credit agreement between India and another country that an NRI lives in, they can claim credit for foreign tax in that country

Amendments in Financial Bill 2020

Here are some amendments made in the 2020 financial bill regarding NRI status that might interest you.

• As per the new rule made in 2020, the time period of 182 days of stay in India for NRI has been reduced to 120 days. However, this applies only when the NRI earns INR 15 lakhs+ Indian income in a financial year
• Regarding the RNOS status, the new amendment states that people with taxable income of INR 15 lakhs+ and those who are resident individuals and have stayed in India for 120 to 182 days will have RNOR status
• For Deemed Residential Status, the new law says that a person who doesn’t have tax liability in a foreign nation and who earns a total taxable Indian income of INR 15 lakhs+ is deemed to be an Indian Resident

NRIs were given tax relief under the 2021 budget to spare them from double taxation. This has been done by adding a new Section 89A to the Income-tax Act 1961. As per the new section, income from accounts opened in a foreign country is not taxable on an accrual basis. Rather, the tax liability will be there at the time of withdrawal of the money as per the new rule, which came into effect from April 1, 2022.

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Conclusion

Every year, a significant number of people from India migrate abroad looking for jobs, business, or study. This brings a considerable inflow of foreign exchange as money transfers or remittances which helps in blooming the GDP in India. NRIs investing money in India allows profitable returns to the country.

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