Just by earning abroad or staying outside India, you’re not an NRI.Then who is an NRI? What is NRI Definition? How Income Tax and FEMA defines NRI?
Do you know that there are more than 29 million Indians residing outside India. They bring in lot of foreign inflow into India every year. Especially with growth of IT and business in India , there are lot of Indians who travel abroad. Even when we go abroad, there are certain things to keep in mind as long as we are Indian citizens.
The idea for the post ‘Who is an NRI – Definition per FEMA & Income Tax Act‘ was derived from an email written by Mr. Harsh from Pune. Below is the question written by him.
Hi
I’m working in Australia from Feb’15. I’ll return to Pune by Sep’15. I know foreign income is not taxed in India but my friend said I might need to pay tax.Can you tell me if i need to pay tax for my income earned in Australia. The salary was credited to my ICICI salary account in India.
Harsh
Now this a very common dilemma faced by many Indians abroad. I also faced this confusion when I first moved out of India.They might go outside India to work, study, official Government work etc.,
Actually I want to thank Harsh for giving the idea for the post and I will be writing a series of articles over next 2-3 moths for the benefit of NRI readers of our blog. Nearly 7% of regular readers of our blog are NRIs.
The series will primarily focus on Income Tax rules for NRIs, investing rules and few other related. if you’re an NRI or just want to be aware, then subscribe below to receive update when we publish the posts..
NRI definition per Income Tax and FEMA
The first time I heard and tried to learn about NRI definitions, I came across many words. ROR, RNOR, PIO etc., All this was entirely confusing for me the first time. I have tried to give you the simple version of my understanding. Hope you can understand the definition of NRI better than I did the first time.
Who is an NRI or Non-Resident Indian
Resident and Ordinary Resident(ROR) and Non-Resident (NRI)
More than Non-resident status, the laws define who is a resident more clearly. If you understand whether you’re a resident or not, then you can make out clearly who is an NRI or non-resident.
Usually there are two ways to determine if you’re an NRI. One is the Foreign Exchange Management Act, 1999 and other is the Income Tax Act,1961.
Who is resident per FEMA definition?
As per this Foreign Exchange Management Act 1999, a person is considered to be resident if he stays for equal to or more than 183 days in India during the preceding financial year.
FEMA considers financial year to be 1st April to 31st March though there is no explicit definition of the same. FEMA definition of NRI is primarily for foreign exchange control purposes.
Who is resident per Income Tax Act definition?
The Income Tax Act of 1961 defines a resident as follows..
A person is a resident who has stayed equal to more than 182 days of current financial year in India or if he stayed in India for
60 days or more in previous financial year and 365 days or more in four years before that financial year under consideration.
If you satisfy either of above definition, then you’re an Ordinary resident of India for that financial year and must pay taxes in India. As per Section 6 of the Income Tax Act, If you don’t satisfy above conditions for a resident, then you’re an NRI-non resident Indian.
Are you an NRI-Non Resident Indian?
FAQ 1: Mr Anil has stayed in India from 01 April 2014 to 31 October 2014. He leaves India to work in US on 01st Novemeber 2014. Is he an NRI for FY 2014-15. Is he an NRI?
Ans: No. Since he has stayed for more than 182 days in previous financial year in India. So his global income for 01 November 2014-31st March 2015 is taxable in India including what he earned from April-October. However, he can use DTAA and avoid double taxation if he paid taxes in US.
FAQ 2: Mr. Anil leaves to work in US on 15 August 2015. He stays there for remaining period of that year. Is he an NRI?
Ans: Yes. In this case , his period of stay is less than 182 days in India and for major part of year he was abroad. So he will be deemed as NRI for FY 2014-2015.
FAQ 3: Mr. Anil who left on 15 June 2015 visits India frequently(more than 100 days each year) between 2015-2018. His total period of stay is more than 365 in last 4 years. In October 2018, he visits India and stays another 100 days. Is he an NRI for FY 2018-2019?
Ans: In this case, he is not considered an NRI for FY 2018-19. Because his stay exceeds 365 days in preceding 4 financial years and more than 60 days in current financial year. Though he will be considered NRI for FY 2014-15, 2015-16,2016-17, 2017-18 he will be considered as resident for 2018-19 and taxed accordingly.
Note: In this example, if the person is crew member of ship or holds a valid PIO(Person Of Indian Origin), then this 60 days restriction is again extended 182 days for that financial year.
There are certain relaxation and exemptions in determining if you’re NRI for shipping crew members.
Definition of NRI-Non Resident Indian as per IT department and Wikipedia article on NRI.
Resident but Not-Ordinary Resident (RNOR)
There is one more class that is slightly different from Resident and NRI. They’re called ‘Resident and Not Ordinary Resident'(RNOR). You classify as an RNOR citizen if you satisfy below requirements.
- The person has been an NRI for last 9 out of 10 years OR
- The person has lived in India for less than 730 days in preceding 7years.
But what is the use of this RNOR category?
RNOR citizen has to pay tax only on income generated in India. The foreign income earned by that person is exempt from tax. It is primarily used by returning NRIs.
A person can be classified as an RNOR for usually 2 years after their permanent relocation to India. In some cases, if they travel intermittently abroad and based on the date of relocation, it may be for 3 financial years.
Returning NRIs must use this RNOR status to set things in order and get ready to be taxed as Indian citizens in future.
FAQ 4: Mr.Pradeep returns to India from US or UK after 10 years in 01st Novemeber 2015 with an idea to settle in India. He again leaves to be in US for 3-4 months in 2016 due to work. So he will be classified as an RNOR for FY2015, 2016,2017 considering he was less than 730 days in India in last 7 years.
In case he did not do the abroad trip, he will have RNOR status for two years. He need not pay tax on his US/UK income for those two years alone. After two years, he will be taxed as per Indian tax laws even on what he earns in US/UK.
However, he can again use DTAA between India and UK/US to avoid paying tax at both US/UK and India.
Related post: Difference between NRE and NRO account
NRI definition for companies and HUF
Not just individuals, the Income Tax Act also defines the residency status for companies, associations and HUF.
Any HUF, company, association will be treated as ‘non-resident’ when the control & management of the concerned entity is situated outside India for the whole financial year.
This means any company registered and managed outside India will be considered non-resident.
Contradictions between FEMA and Income Tax Act on NRI definition
- While Income Tax Act considers only the number of days in or outside India for defining resident,you should keep in mind that FEMA considers ‘the intention’ to stay outside India as well to determine if you’re a resident.
- For example, a student going abroad to study does not have intention to stay outside India for uncertain period. FEMA considers them as residents.
- Again, if you go to US or UK for medical treatment for more than 6 months in a financial year – Income Tax Act considers you as NRI but FEMA definition considers you as resident since you don’t have intention to stay abroad.
What happens to foreigners coming to work in India
Well, if you come with an intention of working and staying in India then you’ll be considered a resident of India even if you’re not a citizen of India. You’ll be taxed as per Indian tax laws.
Note: If you fall under the definition as resident per Income Tax Act, then you need to pay tax for that financial year.
Harsh, though I replied on email hope this detailed explanation on Who is NRI – Definition per FEMA & Income Tax helped you better and others as well. Ask any doubts you might have below. I will try to answer them if I know 🙂
Dear Sir,
I am writing to you for a clarification on Residential status as per Income Tax Act.
Background:
I am currently an Indian resident and an income tax assessee over the years. I am based in Mumbai currently. Earlier I was employed with corporates in India and in the last 2.5 years I have been doing my own business consultancy work for companies registered and based outside India and have been receiving my consultancy fees in foreign currency in India for which I am paying Income Tax in India.
In the next financial year 2018-2019, I plan to move my base to Dubai for an unknown period of time. This means I will leave India for the first time and have registered a ‘business/company’ in UAE under which I will render my consultancy services to my clients and I will start to earn my consultancy fees in Dubai. My aim is to to spend less than 182 days between 1st April 2018 to 31st March 2019 and then follow the same pattern in the following financial years.
Queries:
I have the following 2 queries:
1) Assuming that I spend less than 182 days in India in the financial year 2018-2019 (assessment year 2019-2020), will I be considered an NRI under the Income Tax Act and be exempted from paying income tax with immediate basis from year 1 itself? Or is there any other criteria to be fulfilled before I can start availing exemption on income tax?
I am confused about the condition no. 2 in the Income tax rule for NRI status which states the following:
‘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.
As per the condition no. 2 mentioned above, an individual is deemed to be resident of India in any previous year if he is in India for a period of 60 days or more during the previous year AND 365 days or more during the 4 years immediately preceding the previous year.
Assuming that I spend anywhere between 60 days and 182 days in India in the financial year 2018-2019 (assessment year 2019-2020), I will never be able to fulfill the condition of 365 days or more during the 4 years immediately preceding the previous year as I have been in India continuously in the preceding 4 years.
Does this mean I should not spend more than 60 days in India in the first 4 financial years to be absolutely exempt from Income tax?
2) I am not taking up ’employment’ in the foreign country. My earnings will be from the business that I set up. In the information that I read on the definition of residential status, it states ‘Indian citizen leaving India for the purpose of employment’. Does self-employment/business fall under the same definition of employment for determining NRI status?
Kindly clarify on the two queries above.
Thanks and Regards,
Sherwyn
My husband stays in india from 1st April 2016 till November 14 2016 later he went to abroad for job..whether salary earned in abroad frm november will be taxable for financial 2016 _17
Do i need to convert my account to nre/nri to claim the tax free benefits or if simply in the financial year i stayed more than 183 days outside the country with normal saving account in india,i am liable for tax free income that i earned.
I am in the USA for the entire period 1st April 2016 to 31st Mar 2017, living here as a dependent to my husband and not working. Will I be classified as NRI even though I am not earning ?
Hi Sir
This is a common question for lot of personnel working in Oil & Gas Offshore Industry. We are abroad for employment for more 183 days any fiscal year and we are eligible for rotational leave as per company policy, eg. 28 days work & 28 days off or 21 days work & 21 days off. However, we are confused about the criteria of “365 days or more in four years before that financial year under consideration.” If we consider above criteria then we are staying in India for more than 365 days or more in four years. Kindly advise whether we are eligible for NRI status?
Hello,
Please help me on my residency status. I am working in a software company and I have travelled to UK on 6th feb-2016 and came back in Dec-2016 for 12 days on holidays in India. Then went back to UK and finally landed on India on 1st feb-2017(but my flight from UK was on 31st Jan).In last four years I was in India only.
Please let me know whether I am NRI or RI for this financial year.
Thanks
Alakhniranjan
I have been living in US on H1B Visa since 6 years and have resident account in India. I came to know few days back that a NRI can’t maintain a resident account in INDIA.I sent money couple of time to that account for my family maintenance. My question is if i convert my account from resident to NRI then is there any violation of FEMA or Income Tax in India ? because I am converting it very late ? if yes then what are penalties they can impose ? I checked RBI website about Section 13 of the Foreign Exchange Management Act, 1999 but not able to understand properly. Can you assist ?
I left India in Sep-2012 and till now i just visited India 40 days in 2013-14 and 90 days in 2016-17 as per income tax Ass. year.
I didn’t inform bank yet that i am NRI, and account leave open as normal resident so far.
and didn’t file any income tax return due to income in india is lower than taxable income.
My Questions:
1} From 2017-18 i am thinking to stay in India for 190 days so, shall i be consider resident from 17-18, even though i was NRI in between 2012-17 ?
2} Shall i need to inform bank that i was NRI between 2012-17 or should i continue as normal resident ?
3} Will there be any tax liability for not informing bank nor any income tax office about my NRI status under income tax india or FEMA ?
4} I have Equity shares invested almost 10 yrs ago, so holding in demat as a resident indian too, so should i inform them about my NRI status or it should be fine bcs i am going to stay 190 days from 2017-18.
Please guide on the above sited issues.
Hi,
While filing income tax I would like to declare my foreign income in ITR or I would like to declare money which I transferred to india.
Is their any way to declare TAX exempt foreign income in ITR.
HI. THIS IS MY FIRST VISIT TO YOUR SITE AND APPRECIATED THE WAY YOU CLEAR ALL THE ENQUIRES.
Dear Parsha,
I would really appreciate a reply to this if you would.
My husband and I are Indians living in Singapore since July 2012. I am employed full time while my husband is employed on and off. We have traveled to India frequently in the last few years.
I have recently been laid off and have to return to India in a few months with my husband. In this financial year I was employed from April 1 – August 16. My husband will be employed from August 17-October 20. We intend to return to India on November 20.
I have spent 13 days in India in FY 2016-17. My husband has spent 33 days in FY 2016-17.
Will we have to pay taxes on our Singapore income in India in FY 2016-17 on our return?
Please do reply.
Need your guidance ….
I am a teacher working in Uzbekistan for last 6 years . I visit India every year for around 100 days (from 25 th May to 28 th August) . I have an NRE account, opened in 2012.
Now I wish to invest my money in SBI life smart privilege scheme with yearly premium 600000 for 15 years term. Do I have to pay any taxes as per FEMA?
Please also suggest me If I do some FDs on my name , are they taxable also?
I am an old 64 years sailor, last employment ends on 7th Feb, 2016, Now retired, how long I can make my NRI account maintained. I may be going for vacations for six months out of India but not more each year. Now my only Income source, real estate rental, and bank NRI interest only about Rs 12 lac per annum.
I returned to India on 15 Jan 2016 after 20 plus years stay outside India continuously. In none of the twenty years I stayed more than 60 days in a calendar or financial year except for the year ending 31 Mar 2016. During Fy ending 31 Mar 2016 which I stayed for for about 75 days, During the coming financial year ending Mar 2017 I now have already stayed about 107 days as of 19 July 2016 – but there is a strong possibility I may leave for a foreign assignment before end August 2016, If so I will try to make sure I stay at least 182 days during the current FY
My question is – I have already stayed now for 182 days continuously in India – do I need to declare to the RBI and banks that I have returned to India for settlement or I can wait at least till August 2016 end for this?
Hi Parsha,
Appreciate your great work.
I came on an onsite assignment from April 2016 and will stay till November 2016. Till now I have transferred all my income to my normal India Savings Account. Planning not to open an NRE/NRO account as maximum i will stay only for next 4 months. I have income from Shares which will cross the income tax slab limit
Please let me know will there be any problem while filing the tax for next year as i have transferred to my normal savings account in india.
Thanks in Advance,
Suresh
Hi Parsha! Thanks for posting such useful information. I need a clarification from you about the resident/non-resident status of Government officials posted abroad on Govt. duty. For instance, Ministry of External Affairs posts its officials on duty to different Embassies abroad. The basic pay of such officials is taxable in India with their status treated as Resident. Foreign allowance paid to such officials is not taxable.
Such officials would seem to qualify as NRIs under the conditions stipulated in Section 2(3) and Section 6. However, some of our colleagues file their ITRs as Residents, whereas many others file as NRIs. I would like to get your expert advice on this – whether Govt. of India officials posted abroad on Govt. duty and meeting all conditions under Income Tax Act indeed should be NRIs or not?
Would appreciate your expert comments.
i am software eng working in hungary with software co since Jan2014 and wants to return back in india in aug2016 will i will be nri or other term and can i bring all my savings to india as i want to settle backin india ..what a/c should i open in bank and as hungary is intreaty for double taxation what will be my tax implications or what is better option . pl reply and comment urgently
As per basic details provided by you, for the salary income of the period April 2014 to March 2015 and April15 to March 2016 (AY 2015-16 & AY 2016-17) you are NRI, your salary income in not taxable in India. For current year April 2016 to March 2017, for getting the same exemption in India, you presence should be less than 182 in India this year also. Try to come after Sep 2016, ensure that you are present in India for less than 182 days.
You can bring all your savings in India, there is no taxation for legitimate income transfer to India. contact for any further clarification anishpoddar at the rate gmail .
Thanks
I am living in UK for past 5 years and I will be returning back to India (for good) at year end. I am working in UK on work permit which is ending in December. I have a bank account in India (which is 15 year old account) and I never converted it into NRI/E account. When I came to UK, I opened an account with same bank in UK and used it for salary and other stuff. I used to send money at regular intervals for family upkeep in India. However, now after spending 5 years in UK I have some money saved up which I want to use to buy a house when I move back to India.
What are my options to transfer my life savings back to India now? Should I convert my Indian bank account to NRI account? What repercussions will it have on my account and is there an issue that I didn’t converted the account 5 years back? I don’t want to transfer my money and then the bank lock my account. What will happen once I move back to India – how can I use the money sent to my NRI account?
Pl guide on this issue:
a citizen of India is leaving abroad from last 7 to 8 years with family, as one of the family member is employed abroad. Citizen visit every year India for around 100 days. Last year, NRE deposit account opened in the name of Citizen which is tax free. For filing of Income tax return- as per Income Tax Act, status is resident, but as per Fema NRI. Can you pl check and confirm that even on the status of resident as per Income Tax, a citizen can claim interest on these NRE deposit as tax free or not?
pl suitably explain.
Hi,
As I’m not much familiar with financial terms, can you please advise my the best way to transfer money to India. Please find my facts below
1. I left India to US on Sep-06-2015
2. Took 10 days holidays in January
3. Till date (June-09-2016) holding my Job in us
4. May Come back to India by next month and may not come back
5. I have a resident account India which is linked to my housing loans
6. Haven’t yet transfer any money to Indian account yet.
Questions:\
1. What is the best way to transfer money to save tax as I’m paying tax here in us.
a. Open an NRE a/c and Transfer
b. Convert existing resident A/c into NRO and Transfer
2. What should I do to avail DTAA to get a reduced TDS.
a. Is it bank specific, I red that ICICI is offering DTAA benefits for NRO account but Axis bank is not according to their customer service
c. I guess that all the banks should use the DTAA to avoid double taxes since this is a rule in India, am I correct?
3. What is the tax implication on transferring money to my wife’s bank account or to my existing resident account or even sending money (through WU) to my parents?
Thanks,
Santhosh
Hi
Please find reply below
1) Open NRE account and transfer.
2) File income tax returns in India with help of qualified CA.
3) Better to transfer to NRE account and then distribute. Income received by any is taxable in their hands unless it is a gift.
Hi , have been to abroad country from april 2016 to may 2016 for 25 days and now finally recieved appointment letter . Job starts from 1 st april but job visa has been accuired from 25 th may, after that came back to india, now travelling back and shall be staying there , will my past days shall be counted in completing more then 182 days
HI HArshit
Yes, will be counted if passport says you stayed more than 182 days in tat financial year.
Hi, Thanks for the nice piece of information which is helpful for the person like me who are not very well equipped to decode the nitty gritty of legal tax parlance. I will be grateful if you can help me with the following.
I am employee of software company & came outside India on deputation in NOV 2014. My period of stay for last 4 years as follows
Period Place
Before Nov 2014 India
Nov 2014-Dec 2015 Outside India
Jan 2016- Mar 2016 India
April 2016- Dec-2016 Outside India
Please let me know whether I am NRI for financial year 2015-2016 & 2016-2017.
HI Neeraj
For both years, you’re NRI.
Hello,
One clarification required, In your FAQ 2 above, Mr. Anil satisfies the 60 days condition. Is he not the resident by 60 days condition then?
Hi Sandy
No. The 60 days condition should be considered with 365 day stay condition in preceding 4 financial years and mostly fits for people staying intermittently in India for long periods(people on contracts few months in year) and traveling abroad again for work.
Fiscal for IT Days out of indiaDays in India
01/04/2012 31/03/2013 54 311
01/04/2013 31/03/2014 120 245
01/04/2014 31/03/2015 196 169
01/04/2015 31/03/2016 199 167
Am I NRI for FY 14-15, 15-16?
hi,
if i withdraw PF after 5 years how much amount ill get?
shall i get (12%+12%) x 12 x 5 + 5 years non taxable interest, or less than that?
regards.
Hi
Looks like comment is on wrong post. Please check out below for PF related
http://www.smartmoneygoal.in/blog/ppf-rules-interest-balance-loan-withdrawal-invest-transfer/
hi,
i want to know more about fema.
Hi Manoj
If in general you want to learn more about FEMA, check below URL
https://www.rbi.org.in/scripts/fema.aspx
Hello,
I am a seafarer,i am 15 days short to complete my nre time in this financial year. kindly, let me know if i go to singapore for holidays,is it acceptable to complete nre time as per income tax rules in India.
Regards.
Hi
While your holiday to Singapore will not be counted as per FEMA, I believe it will be counted as per income tax law to make you NRI for that financial year. A professional CA can file returns per your requirement.
So in that case if i go to singapore on holidays for 15 days to complete my nre time,it will be counted. am i liable to pay any income tax to indian government .
Yes. I believe it should. No tax needed to pay if stayed more than 183 days outside India for financial year.