Many famous personalities like Kalpana Chawla, Jhumpa Lahiri, Amartya Sen, Lakshmi Mittal, and Indira Nooyi proved their mettle in various fields. These people stayed outside India but worked for India. But have you ever thought about their residential status? Were they Indian residents, or NRIs or OCIs? Well, this article will cover everything that you need to know about what is NRI and OCI, the difference between NRI and OCI, and the bank accounts applicable to NRI and OCI.
Who are NRIs?
An NRI or a Non-resident Indian is an individual who is a citizen of India but resides outside India for business, employment, profession, or higher education. NRIs are those individuals who intend to stay outside of India for an indefinite period.
Any person is considered a resident if he/she has stayed in India for a minimum of 182 days during the previous financial year. Or
Any person living in India for 365 days during the last 4 years and a minimum of 60 days during the previous financial year.
It is important to identify your residential status to understand the tax rules and regulations. Generally, NRIs have to pay taxes in India in the following circumstances -
Earning money outside India and receiving it within the Indian territory. For example, the payment was received from the State Bank of India, India, for freelance work done for JP Morgan Chase in New York.
Income earned within India but received outside India. For example, the rent for a flat in Kolkata is received in the Berlin branch of American Express.
Who are OCIs?
An Overseas Citizen of India (OCI) is a foreign citizen who is of Indian origin. They are permitted to reside and work in India indefinitely. As per Section 7A of The Citizenship Act 1955, foreign citizens can register as OCI cardholders.
The OCI card, issued by the Indian government, signifies permission for non-residents or foreigners to live and work within India's borders. This card grants immigration status without any restrictions on tenure. Certain categories of Persons of Indian Origin (PIOs) who have moved from India to other countries (excluding Pakistan and Bangladesh) may also be eligible for OCI cards if their respective governments allow dual citizenship.
However, the following individuals cannot hold an OCI card -
Residents migrating from Bangladesh and Pakistan cannot hold an OCI card.
Citizens who have served in military services in foreign countries are not eligible to hold an OCI card.
Once issued, an OCI card does not have an expiration date and remains valid for the whole lifespan of the OCI cardholder.
NRI vs OCI
If you are wondering what is the difference between NRI and OCI, refer to the table below. Here are the differences between OCI and NRI -
Basis | NRI | OCI |
Eligibility | An individual can be called a resident of India if he/she resides in India for less than 182 days. | Any foreign national eligible to become an Indian citizen after 1950 or someone who belonged to a territory that became a part of India after 1947. |
Applicability | You don’t need to apply anywhere to become an NRI. As soon as you fulfill the eligibility criteria, you automatically attain the status of an NRI. | You have to apply for the OCI card through the Indian government's online portal. |
Investment options | NRIs can invest in commercial/residential property but not in agricultural, farmhouse, or plantation property. | OCI holders can also invest in commercial/residential property but not in agricultural, farmhouse, or plantation property. |
Taxation | Income earned through receipts and investments in India is taxable in India. | OCI cardholders have to pay tax on their global income |
Documentation | Overseas residential proof |
|
Residential Status | For 182 days or less | For an indefinite period |
What are the Bank Accounts Applicable to NRI and OCI?
The following bank accounts can be opened by NRIs and OCIs in India -
Non-Resident External (NRE) Account - Individuals can open an NRE account in India to deposit income earned outside India. The money is deposited in foreign currency and withdrawn in Indian currency. The deposits and the interest earned are repatriable, and the interest earned is exempt from tax.
Non-Resident Ordinary (NRO) Account - Individuals can open an NRO account in India for the income earned in India. Both deposit and withdrawal are in Indian rupees. The deposits made can be repatriated to the account holder’s country of residence as per applicable tax limits. Interest earned is subject to tax as per the applicable rates of TDS.
Foreign Currency Non-Resident Account (FCNR) - Income received in foreign currency can be deposited in an Indian account through an FCNR account. Currency deposits are held in various specific currencies like SGD, AUD, USD, CAD, etc., and withdrawals are made in foreign currency.
These accounts cater to the spending and investment needs of Non-Resident Indians (NRIs) or Overseas Citizens of India (OCIs) residing in countries outside India.
The deposited funds and the interest accrued are completely repatriable, meaning they can be freely transferred abroad. Additionally, the interest earned is exempt from taxation.
Hope this article helped clarify the difference between NRI and OCI, their meaning and full form, bank accounts, eligibility criteria, etc. Now that you know what is the difference between NRI and OCI, you can make sure to claim the tax benefits available to NRIs. You can also consult tax experts to make the most of all the tax benefits and never miss a potential deduction.
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