A Non-Resident Indian (NRI) is a person of Indian origin living abroad. The Income-tax Act, 1961, sets different tax rules for Indian residents and NRIs. To understand these rules, it is important to determine your residential status in India, which can change each financial year based on your time spent in India.
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Determining Your Status: Resident or Non-Resident Indian
Resident in India:
Criteria:
- You are in India for 182 days or more during the financial year, or
- You are in India for at least 365 days over the previous four years and 60 days in the current year.
Special Cases:
- Employment Abroad:
- If you are an Indian citizen and leave India for employment or as a crew member on an Indian ship, you become an NRI if you stay in India for less than 182 days in the previous year.
- High Income Visitors:
- If you are an Indian citizen or of Indian origin, visit India, and your total income (excluding foreign income) exceeds Rs. 15 lakh, you are a resident if:
- You stay in India for 182 days or more in the financial year, or
- You stay in India for at least 365 days over the previous four years and 120 days in the current year.
- If you are an Indian citizen or of Indian origin, visit India, and your total income (excluding foreign income) exceeds Rs. 15 lakh, you are a resident if:
Deemed Resident:
- If you are an Indian citizen with a total income (excluding foreign income) over Rs. 15 lakh and not a tax resident of any other country, you are deemed a resident.
Non-Resident Indian:
- If you do not meet the criteria for being a resident, you are an NRI. Generally, this means staying in India for less than 182 days in a financial year.
Indian Ship Crew Members:
- Days spent on an Indian ship during an eligible voyage (leaving or arriving at an Indian port) are excluded from your stay in India. This rule applies from April 1, 2015.
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Resident but Not Ordinarily Resident (RNOR)
After spending years abroad, if you return to India, you may qualify as RNOR if:
- You have been an NRI for 9 out of the 10 previous years, or
- You have stayed in India for 729 days or less over the previous 7 years, or
- You are an Indian citizen or of Indian origin with income over Rs. 15 lakh (excluding foreign income) and have stayed in India for 120-182 days in the previous year, or
- You are an Indian citizen with income over Rs. 15 lakh (excluding foreign income) and are not liable to tax in any other country.
Taxable Income for NRIs and RNORs
NRIs:
- Income earned in India is taxable.
- Income outside India is not taxable in India.
- Salary earned as a non-resident seafarer on a foreign ship is not taxable in India, even if credited to an Indian bank account.
RNORs:
- You can retain RNOR status for up to 3 financial years after returning to India.
- During this period, your taxation is similar to an NRI:
- Income earned in India is taxable.
- Income outside India is not taxable.
- After 3 years, all your income, including foreign income, will be taxable in India.
What Does “Earned in India” Mean?
Income is considered “earned in India” if it is:
- Received in India, or
- Deemed to be received in India on your behalf,
- Accrued or arisen in India, or
- Deemed to accrue or arise in India.
Specific Scenarios:
- Income from business connections, property, or assets in India.
- Capital gains from transferring assets in India.
- Salary for services rendered in India.
- Salary paid by the Indian government for services outside India (for Indian citizens).
- Dividends from Indian companies, interest, royalties, or technical fees from the government.
Deductions for NRIs
NRIs can claim deductions under Section 80C, such as:
- Life insurance premiums,
- Tuition fees for children,
- ULIP payments,
- Repayment of principal on loans for residential property,
- Investment in ELSS.
Other allowable deductions include those under Sections 80G, 80D, 80TTA, 54, and 54EC.
NRI Status and NRI Taxation Simplified
A Non-Resident Indian (NRI) is a person of Indian origin living abroad. The Income-tax Act, 1961, sets different tax rules for Indian residents and NRIs. To understand these rules, it is important to determine your residential status in India, which can change each financial year based on your time spent in India.
Determining Your Status: Resident or Non-Resident Indian
Resident in India:
- Criteria:
- You are in India for 182 days or more during the financial year, or
- You are in India for at least 365 days over the previous four years and 60 days in the current year.
Special Cases:
- Employment Abroad:
- If you are an Indian citizen and leave India for employment or as a crew member on an Indian ship, you become an NRI if you stay in India for less than 182 days in the previous year.
- High Income Visitors:
- If you are an Indian citizen or of Indian origin, visit India, and your total income (excluding foreign income) exceeds Rs. 15 lakh, you are a resident if:
- You stay in India for 182 days or more in the financial year, or
- You stay in India for at least 365 days over the previous four years and 120 days in the current year.
- If you are an Indian citizen or of Indian origin, visit India, and your total income (excluding foreign income) exceeds Rs. 15 lakh, you are a resident if:
Deemed Resident:
- If you are an Indian citizen with a total income (excluding foreign income) over Rs. 15 lakh and not a tax resident of any other country, you are deemed a resident.
Non-Resident Indian:
- If you do not meet the criteria for being a resident, you are an NRI. Generally, this means staying in India for less than 182 days in a financial year.
Indian Ship Crew Members:
- Days spent on an Indian ship during an eligible voyage (leaving or arriving at an Indian port) are excluded from your stay in India. This rule applies from April 1, 2015.
Resident but Not Ordinarily Resident (RNOR)
After spending years abroad, if you return to India, you may qualify as RNOR if:
- You have been an NRI for 9 out of the 10 previous years, or
- You have stayed in India for 729 days or less over the previous 7 years, or
- You are an Indian citizen or of Indian origin with income over Rs. 15 lakh (excluding foreign income) and have stayed in India for 120-182 days in the previous year, or
- You are an Indian citizen with income over Rs. 15 lakh (excluding foreign income) and are not liable to tax in any other country.
Taxable Income for NRIs and RNORs
NRIs:
- Income earned in India is taxable.
- Income outside India is not taxable in India.
- Salary earned as a non-resident seafarer on a foreign ship is not taxable in India, even if credited to an Indian bank account.
RNORs:
- You can retain RNOR status for up to 3 financial years after returning to India.
- During this period, your taxation is similar to an NRI:
- Income earned in India is taxable.
- Income outside India is not taxable.
- After 3 years, all your income, including foreign income, will be taxable in India.
What Does “Earned in India” Mean?
Income is considered “earned in India” if it is:
- Received in India, or
- Deemed to be received in India on your behalf,
- Accrued or arisen in India, or
- Deemed to accrue or arise in India.
Specific Scenarios:
- Income from business connections, property, or assets in India.
- Capital gains from transferring assets in India.
- Salary for services rendered in India.
- Salary paid by the Indian government for services outside India (for Indian citizens).
- Dividends from Indian companies, interest, royalties, or technical fees from the government.
Deductions for NRIs
NRIs can claim deductions under Section 80C, such as:
- Life insurance premiums,
- Tuition fees for children,
- ULIP payments,
- Repayment of principal on loans for residential property,
- Investment in ELSS.
Other allowable deductions include those under Sections 80G, 80D, 80TTA, 54, and 54EC.