NRI
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.
The income tax website defines an NRI like this:
'Non-resident Indian' is an individual who is a citizen of India or a person of Indian origin and who is not a resident of India. Thus, in order to determine whether an Individual is a non-resident Indian or not, his residential status is required to be determined under Section 6. As per section 6 of the Income-tax Act, an individual is said to be non-resident in India if he is not a resident in India and an individual is deemed to be resident in India in any previous year if he satisfies any of the following conditions:
1. If he is in India for a period of 182 days or more during the previous year; or
2. 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.
However, in respect of an Indian citizen and a person of Indian origin who visits India during the year, the period of 60 days as mentioned in (2) above shall be substituted with 182 days. The similar concession is provided to the Indian citizen who leaves India in any previous year as a crew member or for the purpose of employment outside India.
The Finance Act, 2020, w.e.f., Assessment Year 2021-22 has amended the above exception to provide that the period of 60 days as mentioned in (2) above shall be substituted with 120 days, if an Indian citizen or a person of Indian origin whose total income, other than income from foreign sources, exceeds Rs. 15 lakhs during the previous year. Income from foreign sources means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).
Note: The Finance Act, 2020 has introduced new section 6(1A) to the Income-tax Act, 1961. The new provision provides that 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. For this provision, income from foreign sources means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).
However, such individual shall be deemed to be Indian resident only when he is not liable to tax in any country or jurisdiction by reason of his domicile or residence or any other criteria of similar nature.
Thus, from Assessment Year 2021-22, an Indian Citizen earning total income in excess of Rs. 15 lakhs (other than from foreign sources) shall be deemed to be resident in India if he is not liable to pay tax in any country.
A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided India.
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.
Related:
Understanding RNOR Tax Status in India: Key Rules and Tax Obligations Explained
If you are in India for more than 182 days in the previous year then you are a resident Indian.
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 2024. Let’s consider the cases:
If any of the two cases above are true then you are a resident Indian.
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.
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.
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 NRE or 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 or during your next visit to India.
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, will become 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 account is used for any income and investments in India. The features and uses are:
It is the NRI’s responsibility to update their non-resident status in Banks, mutual funds, demat account and PAN.
Related:
What should NRIs do if your PAN has become inoperative?
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Published: 20 November 2024
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This post titled Who is an NRI and who is not? Understanding FEMA and NRE/NRO bank accounts first appeared on 20 Sep 2023 at https://arthgyaan.com
