The NRIs (Non-Resident Indians) create potential growth prospects for the Indian economy and finances. But, who are NRIs? Well, by way of their residential status in India, people get classified as Resident Indians and Non-Resident Indians or NRIs.
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This is different from an individual's Indian citizenship.
The status of Indian Resident is given to those who have stayed in India for about one eighty-two days during the financial year, or
Have stayed for a minimum of one year (365 days) in the last four years and stayed for sixty days in the concerned year.
Anyone not following the condition will be considered an NRI or a Non Resident Indian.
The NRI status in India is attained by people who are Indian citizens but stay in India for less than 182 days in the preceding financial year or people who live outside India for employment, business, or any other purpose for an uncertain period.
This includes people who are Indian citizens but leave India for employment or are crew members of an Indian ship. For them, the 60-days' minimum period is extended to 182 days.
The residential status for such Indian crew members is determined as follows since 01.04.2015:
They should have a Continuous Discharge Certificate or CDC as per Merchant Shipping Rules, 2001.
It should be for a voyage from a source in India to a destination outside India, or vice versa.
The number of days of stay in India for such individuals will exclude the start and the end date as on the CDC.
Indian crew members on service on foreign ships for 182 days or more are treated as Non-Resident Indians.
An individual holding NRI status has all benefits and rights as any Indian citizen has, e.g., they are eligible for voting in the Legislative Assembly and Council election, and can buy land anywhere in India.
The PIO status (Person of Indian Origin) is given to those foreign nationals who at any time held an Indian passport or either of his/her parents is a citizen of India, or he/she is the spouse of an Indian citizen.
A person can hold the OCI (Overseas Citizen of India) status if the person has any familial connection in India. However, OCI status holders do not have all rights as any other Indian citizen or NRIs have.
An RNOR Status means Resident but Not Ordinarily Resident. To elaborate further, anyone who is an Indian Resident with any of the two conditions mentioned above as met, AND,
Has NRI Status for 9 out of 10 years before the year concerned, OR,
Has been in India for a maximum of 729 days in the 7 years before the year concerned
The rules and requirements for the residential status in India have clearly been described, but there are few differences in laws that one needs to understand. The two laws, the Income Tax Act and the Foreign Exchange and Management Act, are applied for different purposes as-.
All tax liabilities are analysed under Income Tax Act, and
All transactions and investments, the opening of bank accounts, etc., come under FEMA.
To have a clear understanding of NRI status in India, it is essential to go through the specific criteria these laws demand. The definition of NRI is different in Income Tax laws from that of exchange control laws.
As per Section 6 of Income Tax Law, a person is an Indian Resident if:
He is in India for a period of 182 days or more during the previous year or,
If he is in India for a tenure of 60 days or more during the last year and 365 days or more during four years before the previous year, on an aggregate.
Condition 2 is not applicable for those who are of Indian origin but live abroad and comes for a visit to India.
Taxation Rules for NRIs
Any income earned in India is taxable in India.
Any income earned outside India is not taxable in India.
For NRI crew members serving on foreign ships, their salary will be excluded from their total taxable income even though the salary goes to the NRE account of an Indian bank.
For RNORs returning to India they can keep their RNOR status for up to 3 years after their return. So, for them, any income earned in India would be taxable, and that earned abroad will not be taxable, similar to NRIs, for a period of 3 years post-return.
Once anyone assumes the status of an Indian Resident, their income earned inside and outside India becomes taxable.
Income earned in India: This includes any income that arises or accrues in India or accrues in India as deemed by law.
Income accrued in India: As per Section 9 of the Indian Income Tax Act, irrespective of anyone's residential status, if any one of these criteria is met, the income is considered to be "accrued in India”:
Income from salary for services rendered in India
Income from salary from GOI for Indian citizens who serve outside India
Payment of dividend by an Indian Company, whether inside or outside India
Income from any business connection in India
Income from any Indian source, property or asset
Capital gains on transfer of an Indian capital asset
Indian Central or State Government paid royalty, interest, or any fee under specific situations
If an NRI gets income in the form of capital gains due to the sale of equity shares listed on the Indian Stock Exchange, this income will be liable to taxation in India.
If an NRI earns a salary in India under a deputation, this income will be liable to taxation in India.
A foreign company operating an Indian branch will have to file IncomeTax in India.
If an NRI receives rental income from a house or a property situated in India, he becomes liable for taxation on this rental income.
An NRI can claim credit for foreign tax (FTC) in their residential country, as per the agreement between India and that foreign country.
Amendments in Financial Bill 2020
Here is a rundown of the amendments made in financial bill 2020:
In Financial Bill 2020, there have been few significant amendments made in regards to Residential Status criteria. Until FY 2019-20, NRI status India was given to those Indians settled abroad who visited India for less than 182 days in a financial year. According to the new rule, the time period has been reduced to 120 days. This will only be applicable when the Indian income of these individuals is more than 15 lakh during the financial year. This means NRIs who visit India and whose total taxable income in India is up to 15 lakh during the financial year will still be categorized as NRIs.
Resident but Not Ordinary Resident (RNOR) status is given to those people who have been Non-Resident in India during 9 out of 10 financial years preceding that year, or people who have been in India during 7 previous years preceding that year for a period of total 729 days or less. With the new amendments made in FY 2020-21, it has been pointed out that a person with a taxable income of more than Rs. 15 lakhs and who stays in India for 120 to below 182 days and is a resident individual will have RNOR status. The foreign income of RNOR individuals will not be taxable in India.
Another amendment has been made regarding Deemed Residential Status, which states that a person is deemed to be an Indian Resident if he is not tax liable in any foreign country. However, this status will be given only when the total taxable Indian income of the person is more than 15 lakh.
While talking about tax liabilities, it is worth noting that an NRI may have to face double taxation as the income may be taxed in the home country and the source country. The issue can be dealt with by signing up a tax treaty known as DTAA by the home country and the source country. When a non-resident receives the interest income from India, tax is applied per prevailing tax laws, but FCNR and NRE deposits are exempt in this case.
In India, a number of banks offer NRI services; however, the features of NRI accounts they offer may be different from the other in regards to interest rates, facility of Net banking, provision of international debit card, minimum balance requirement. One must have a thorough study before opting for the best service.
In Union Budget 2021, the NRIs have been given tax relief as they have been spared from double taxation. The government has added a new Section 89A to the Income-tax Act 1961, according to which the income from the accounts opened abroad will not be taxable on an accrual basis. This income will be subject to taxation at the time of withdrawal by the foreign country. This change will be effective from April 1, 2022.
As a developing nation, India has massive scope for growth in all sectors, with its skilled workforce and availability of natural resources; it has all potential to attract foreign investors. As for NRIs, investing money in India provides a lot more profitable returns. Every year, a significant number of Indians migrate to other countries in search of employment, business, or study. As a result, there is a substantial inflow of foreign currency. Money transfer or remittances plays an essential role in blooming Indian GDP.
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