NRIs need to follow FEMA rules once their tax residency status changes from resident Indian to NRI. This article shows how to calculate the residency status based on the amount of time spent inside and outside India.

📚 Table of Contents

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• Who is an NRI?
  • Case 1: In India for a period of 182 days or more during the previous year
  • Case 2: Based on previous multiple years residency period
  • Case 3: Based on total income
• When does a student become an NRI?
• Bank accounts - NRE and NRO
  • Non-Resident External (NRE) Account
  • Non-Resident Ordinary (NRO) Account
  • Foreign Currency Non-Resident (FCNR) Account
  • Resident Foreign Currency (RFC)

Who is an NRI?

The income tax website defines an NRI like this:

We will now break this down further. In each of these cases, the definition of “year” is the financial year which runs from 1st April to 31st March. This definition is especially helpful since tax-filing has to be done differently for NRIs vs resident Indians and one of the first questions in the ITR forms is regarding the tax-residency status. In all of these cases, both the departure and arrival dates are included to count as the period spent inside India.

Case 1: In India for a period of 182 days or more during the previous year

If you are in India for more than 182 days in the previous year then you are a resident Indian.

Case 2: Based on previous multiple years residency period

If he is in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year

Assume that today is 1st July 2025. Let’s consider the cases:

• 1st April 2024 to 31st March 2025: were you in India for 182 days or more AND travelled back to India in this period OR
• 1st April 2024 to 31st March 2025: were you in India for 60 days or more AND did not back to India in this period AND between 1st April 2020 to 31st March 2024, you were in India for 365 days or more

If any of the two cases above are true then you are a resident Indian.

Case 3: Based on total income

an Indian citizen shall be deemed to be resident in India only if his total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year

As per Finance Act, 2020, and the new section 6(1A) added to the Income-tax Act 1961, anyone with a total income exceeding ₹15 lakhs, except income from foreign sources, when they are not paying tax outside India is an Indian resident.

The rule is therefore, as per Case 1, Case 2 or Case 3 above:

Any one who is not a Resident Indian is an NRI.

Here is a calculator to help interpreting the rules easily:

When does a student become an NRI?

The residency treatment for students is different. As per FEMA, a student is accorded NRI status immediately when they leave India to study. Any KYC updates (bank account, demat account, mutual fund folios and Sukanya Samriddhi Yojana account etc) should be completed with this rule in mind. From an income tax perspective, the same 182 day requirement applies.

Bank accounts - NRE and NRO

To comply with the Foreign Exchange Management Act (FEMA) rules, an NRI cannot have regular savings accounts in India. Therefore, you must convert existing accounts to NRO accounts and excess accounts must be closed. This step is important once your status changes from resident Indian to NRI and can be done either online, for selected banks, or during your next visit to India.

Feature	NRO Account	NRE Account	FCNR(B) Account	RFC Account
Income Source	Indian income (including capital gains)	Primarily foreign income, some taxable Indian income	Foreign currency deposits	Funds held in foreign currency by returned NRIs
Repatriation	Allowed with Forms 15CA/15CB, up to $1 million/year	Fully repatriable (for foreign income and taxable Indian income)	Fully repatriable	Fully repatriable
Limits	Unlimited when deposited; $1 million/year on repatriation	No limits on deposits/withdrawals	No limits on deposits/withdrawals	Generally no specific limits defined, but related to funds brought back upon return or received from specific sources
Capital Gains	Can receive proceeds from sale of assets	Cannot receive proceeds from sale of assets directly. Proceeds must go to NRO	Cannot receive proceeds from sale of assets	Can receive proceeds from sale of foreign assets held before returning
Taxation	TDS applies to Indian income	Generally no tax on foreign income, tax applies to specific Indian income	Interest earned is tax-free in India	Interest is taxable at slab in India
Currency	INR and Foreign currency	Foreign currency	Foreign currency	Foreign currency

Non-Resident External (NRE) Account

An NRE account can be opened only once you are an NRI as a fresh account. Old accounts, which existed when you were a resident Indian, must be converted into NRO accounts, not NRE accounts. You can check your NRI status here: Who is an NRI and who is not? Understanding FEMA and NRE/NRO bank accounts.

This account is used to send money to India. The features and uses are:

• This is a fresh account that can only be opened by an NRI. Existing resident Indian or NRO accounts cannot be converted to NRE.
• Money deposited in this account must originate outside India.
• Interest earned is tax-free in India but may be taxable in the country where the NRI is residing.
• You can send both interest and principal out of India without limits.
• Deposits can only be made in foreign currency, and withdrawals are in INR.
• Joint accounts are allowed only with another NRI.
• You can transfer funds to other NRE or NRO accounts.
• It may be used for stock investing but is not recommended.
• It is the best option for Mutual Fund investing due to easy repatriation.
• It cannot be used for investing in RBI/Gilt bonds.
• Once you return to India, NRE account must be converted to a resident account once you are a resident Indian as per FEMA (“intention to stay in India for more than 182 days”)

Non-Resident Ordinary (NRO) Account

This account is used for any income and investments in India. The features and uses are:

• Existing savings accounts are converted to NRO accounts (and not NRE) once you leave the country and status changes to NRI from resident Indian as per tax residency rules.
• Interest earned is taxable in India at current slab rates. The benefit of the Double Taxation Avoidance Agreement (DTAA) is available with most countries so that you can offset tax paid in India as an input tax credit in your home country.
• You can send both interest and principal out of India, but the principal must be within $1 million. A CA must certify that you have paid taxes on this income.
• You can make deposits in both foreign currency and INR, and withdrawals are in INR.
• Joint accounts are allowed with another NRI or a resident.
• Incoming transfer into NRO from Indian resident accounts do not attract TCS under the LRS rules
• Funds can be transferred only to another NRO account or to even resident accounts.
• Transfer from NRO to an NRE account i.e. for repatriation is capped at $1 million per financial year and requires CA input on the required forms to be filled
• This account is used to receive income from interest, FD, rent, stock and MF dividends, and the proceeds from selling real estate, stocks, and mutual funds.
• It can be used for both stock and MF investing.
• Only NRO accounts can be used for investing in and for receiving interest from RBI/Gilt bonds from the RBI Retail Direct Portal.

Foreign Currency Non-Resident (FCNR) Account

Note: FCNR(A) accounts were discontinued in 1993 and used to have exchange rate guarantee from the RBI. Now only FCNR(B) accounts, without exchange rate guarantees, exist.

• NRIs or PIO card holders can open FCNR(B) accounts either singly or jointly with other NRIs
• FCNR(B) accounts are term deposit (FD-type) accounts held in foreign currency (USD, EUR, GBP, AUD, SGD, CAD, CHF, HKD are typical)
• Interest is paid every 180 days and the account matures in one to five years
• Interest earned is tax-free in India
• Both principal and interest are fully repatriable
• Pre-mature withdrawal is possible with interest rate penalties
• They eliminate currency conversion risk since they are held in foreign currency
• Can be used for payments in India, making investments and transfers to other NRE or FCNR accounts

Resident Foreign Currency (RFC)

Resident Foreign Currency (RFC) are for NRIs who have returned to India and used to store foreign currency, say in USD, GBP and EUR

• Allows returning NRIs to hold onto foreign currency instead of immediately converting to INR
• These amounts are repatriable and can receive funds from abroad or other NRE / FCNR accounts
• Interest rates are generally lower than FCNR or NRE accounts. Interest rates in RFC accounts are comparable to those offered by foreign bank accounts to maintain interest rate parity (e.g. resident ₹ savings accounts offer 2.75-3.5% while USD RFC accounts offer 0.25%)
• The interest income on these accounts are taxable at slab rates for ROR. If you are an RNOR status holder then you are not liabile to pay tax on these accounts in India.
• RFC accounts help you time your currency conversions from foreign currency to INR based on expected exchange rate movements
• Use the RFC account if you have large INR liabilities (e.g. builder payments for an under-construction house) and you expect the Rupee to depreciate against your foreign currency holdings
• RFC accounts can be maintained indefinitely (e.g. savings accounts) while RFC fixed deposits (FDs) will mature on their specific maturity date
• RFC accounts can only be opened NRIs who are Indian nationals with a valid Indian passport (or other government-issued identification)

This table summarises NRE, NRO, FCNR and RFC account types for every type of tax status:

Account Type	NRI	RNOR	Resident (ROR)
NRE	Open & Operate	Can Continue (if not yet reclassified) New not allowed	Must be converted to Resident Account
NRO	Open & Operate	Continue as-is	Continue as-is
RFC	Cannot open	Can Open & Operate	Can Continue / No tax benefits
FCNR (B)	Open & Operate	Cannot open new Continue till maturity	No new deposits Continue till maturity → must convert

It is the NRI’s responsibility to update their non-resident status in Banks, mutual funds, demat account and PAN.