With the advancement of technology, physical boundaries have become practically non-existent in today’s world. This has led to an increase in the number of people moving out of India for higher education, business, employment, and other professions. These individuals are Indian residents who reside outside India. Such individuals of Indian origin residing outside India are called NRIs. Now, you must be wondering what NRI is, what the full form of NRI is, and what NRI's full form and eligibility are. This article answers all your questions regarding NRIs and their taxation.Who is an Indian Resident?
Who is an Indian Resident?
An individual qualifies as a resident of India for income tax purposes under two conditions:
If they stay in India for 182 days or more within the financial year. OR
If they reside in India for a minimum of 365 days over the four years prior to that year and at least 60 days in the current year. It's important to note that these days can be accrued through one continuous visit or multiple visits to India.
Who is an NRI?
An NRI (Non-Resident Indian) refers to someone with Indian citizenship or origin residing outside India. However, there are slight variations in the definitions used by the Foreign Exchange Management Act (FEMA) and the Income Tax Act.
FEMA (Foreign Exchange Management Act):
Focuses on physical presence in India.
An NRI is someone resident outside India who is a citizen of India OR a Person of Indian Origin (PIO). [Reserve Bank of India]
A PIO is defined as:
A citizen of a country other than Bangladesh or Pakistan who:
Held an Indian passport at any time.
Had a parent or grandparent who was a citizen of India.
The spouse of an Indian citizen or PIO.
FEMA uses a time-based rule. Generally, an NRI is someone who spends 182 days or less in India during the preceding financial year. However, this rule has exceptions:
The 182-day limit doesn't apply if the purpose of your visit indicates an intention to stay in India for an uncertain period.
Examples include taking up employment, starting a business, or any other reason suggesting a long-term stay.
Income Tax Act:
The Income Tax Act determines residency based on various factors, including:
An Indian citizen or person of Indian origin is considered an NRI if they spend less than 182 days in India during the previous financial year.
Even if they spend 182 days or more in India, they can be considered NRI if they were present in India for less than 60 days in the previous year and for a total of less than 365 days in the four preceding years.
What are NRI Accounts?
NRI Accounts are bank accounts in India that are specifically designed for Non-Resident Indians (NRIs). NRIs are Indian citizens who live and work outside of India for more than 182 days a year.
There are three main types of NRI accounts:
Non-Resident External (NRE) Account: This account is for deposits made in Indian Rupees (INR) from earnings that originated abroad. Interest earned on NRE accounts is tax-free in India, and both the principal amount and the interest can be freely repatriated (sent back) to the NRI's country of residence.
Non-Resident Ordinary (NRO) Account: This account is for deposits made in INR from earnings that originated in India, such as rent from property in India or pension payments. Interest earned on NRO accounts is taxable in India. The interest amount can be freely repatriated, but the principal amount can only be repatriated up to a limit of USD 1 million per financial year, inclusive of taxes.
Foreign Currency Non-Resident (FCNR) Account: This account allows NRIs to deposit funds in various foreign currencies. The interest earned on FCNR deposits is generally tax-free in India. The entire balance (principal + interest) can be repatriated.
NRIs can use these accounts for a variety of purposes, such as saving money, investing in India, and sending money to family members in India.
Are Indian Citizens as Crew on Indian Ships Considered NRI?
Sailing Foreign Ships - In the case of foreign ships, individuals residing on the ship for 182 days or more are considered a non-resident in India, irrespective of the territory covered by the ship (including Indian waters).
Sailing Indian Ships - Individuals sailing on Indian ships outside India for 182 days or more are considered non-resident Indians. However, the time that a ship spends in Indian waters is considered a service in India.
Residential Status
When you leave for employment outside India If you're an Indian citizen and you depart India for employment abroad or as a crew member on an Indian vessel, you'll be considered a Non-Resident Indian (NRI) if your stay in India during the preceding year exceeds 182 days. So, if you're an Indian citizen or of Indian origin and spend 182 days or more outside of India, you'll be classified as an NRI.
Deemed resident status In addition to the residency conditions mentioned earlier, there's also a concept called deemed residency. If an individual who is an Indian citizen earns a total income (excluding income from foreign sources) exceeding Rs 15 lakhs in a financial year and is not considered a tax resident of any other country, they will be deemed as a resident of India for that year.
What are the Rules Governing NRI Status?
The primary regulations that outline the guidelines for Non-Resident Indians (NRIs) in India are as follows:
Income Tax Act: This legislation regulates the tax responsibilities of NRIs.
Foreign Exchange and Management Act (FEMA): This law oversees all transactions, investments, bank account openings, etc., for NRIs.
It's important to note that the definition of NRI varies between these two acts. In this article, we focus on the definition provided by the Income Tax Act of 1961.
What is the NRI Quota?
The NRI Quota refers to a reserved portion for Non-Resident Indians, Persons of Indian Origin (PIOs), and Overseas Citizens of India (OCIs) across different sectors, particularly in educational institutions. This allocation enables NRIs and PIOs to obtain admission, often exempting them from entrance exams required for residents.
For instance, numerous engineering and medical colleges in India allocate a set percentage of seats under the NRI Quota. This arrangement allows NRIs to secure direct admission based on specified criteria.
The eligibility criteria for the NRI quota
The eligibility criteria for the NRI quota are different based on sectors and specific institutions. The eligibility criteria for the NRI quota in the education field are given below -
Proof of NRI Status: The applicant must prove their NRI status by providing valid documents like a Visa, passport, and employment certificate.
Educational Qualifications: The applicant must also provide their educational qualifications as required by the specific course.
Financial Criteria: You might also have to provide proof of financial capability to pay the higher fees under the NRI quota.
What is the Taxability of NRI Income?
The taxability of NRI income in India depends on the individual’s residential status during the year. If your residential status is ‘resident,’ then your global income will be taxable in India. If your status is NRI, your income accrued or earned in India is taxable in India.
Salary received in India, salary for service provided in India, income from house property in India, capital gains on transfer of asset in India, income from FD or interest on savings bank are income accrued or earned in India. Such incomes are chargeable to tax for an NRI.
Income earned outside India is not taxable in India.
Interest earned on FCNR and NRE accounts is tax-free, whereas, the interest on NRO accounts is taxable in the hands of an NRI.
All the income earned from any source of income in India is subject to tax in India.
Income from Salary - If you received your salary directly into your bank account or earned such income in India, such income is taxable in India.
Income from House Property - The income from house property held by an NRI in India (either rented or vacant) is taxable in India. NRIs can also claim the benefit of the standard deduction, deduction of municipal taxes, and benefit of interest deduction in the case of home loans, which are also available.
Income from Capital Gains - All profits resulting from the sale of assets situated in India are subject to taxation within India. This includes capital gains from investments in Indian equity or debt securities. In the case of selling a property, the Tax Deducted at Source (TDS) rates are as follows: Non-resident Indians (NRIs) are eligible, like residents, to seek tax exemptions under sections 54, 54EC, and 54F for Long-term Capital Gains (LTCG) arising from the sale of a property.
20% for Long-term capital gains.
30% for Short-term capital gains.
Income from Business/Profession - Income earned by an NRI from business/profession is subject to tax in India on the same tax slabs as the resident taxpayers.
Income from Other Sources - Additionally, any earnings acquired by an NRI through sources such as interest from fixed deposits and savings accounts are taxable in India. However, interest accrued in NRE and FCNR accounts is exempt from taxation. Conversely, interest received in an NRO account is subject to full taxation.
Comments