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According to World Bank, remittances to India by non-resident Indians (NRIs) are expected to touch $100 billion in 2022. Increased remittances is a boon due to that Services related to NRI increasing rapidly.

So, Lets understand first meaning of the term NRI as according to Indian Laws

Who is NRI?

  • Definition of NRI as per Income Tax Act, 1961: – Income tax doesn’t provide any direct definition for Non-Resident Indians (NRIs) but it lays down certain criteria’s to certify citizens as residents of India. The residential status of an individual is determined based on the number of days of their stay in India in Financial year (FY) i.e. April to March.

For the purpose of taxation, the Income-tax Act of India divides an individual’s status into three categories:

  • Resident and ordinarily resident (ROR)
  • Resident but not ordinarily resident (R but NOR)
  • Non-resident (NR)

Now first we determine that the individual whether resident or not resident According to Income Tax Act 1961, a citizen will be a resident of India in the previous year, if:

  • He/she is in India for at least 182 days in that year, OR
  • He/she is in India for a period of 60 days or more in the year and for a period of 365 days or more in immediately preceding 4 years.

However, in respect of an Indian citizen and a person of Indian origin who visits India during the year, the period of 60 days 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 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

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. “Liable to tax” in relation to a person and with reference to a country means that there is an income-tax liability on such person under the law of that country for the time being in force. It shall include a person who has subsequently been exempted from such liability under the law of that country. If an individual does not satisfy any of the above conditions then he will be treated as non-resident in India.

Now we determine that whether resident is “ordinarily resident” or “resident but not ordinarily resident”. A resident individual will be treated as resident and ordinarily resident in India during the year if he satisfies the following conditions:

  • He is resident in India for at least 2 years out of 10 years immediately preceding the relevant year; or
  • His stay in India is for 730 days or more during 7 years immediately preceding the relevant year. However, w.e.f., Assessment Year 2021-22, the Finance Act, 2020 has inserted the following two more situations wherein a resident person is deemed to be ‘Not Ordinarily Resident’ in India:
  • 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 and who has been in India for a period of 120 days or more but less than 182 days; [As amended by Finance Act, 2021]

An Indian Citizen who is deemed to be resident in India as per new Section 6(1A). A resident individual who does not satisfy any of the aforesaid conditions or satisfies only one of the aforesaid conditions will be treated as resident but not ordinarily resident.

  • Definition of NRI as per FEMA Act, 1999: An Indian abroad is popularly known as a Non-Resident Indian (NRI). For the purposes of their respective applicability laws, the Foreign Exchange Management Act of 1999 and the Income-tax Act of 1961 define NRI status. Non-resident under FEMA 1999: “Person resident outside India” means a person who is not a resident in India.

Person resident in India means

  • A person residing in India for more than 182 days during the course of the preceding financial year, but not including:
    • A person who has gone out of India or who stays outside India, in either case,
    • in preparation for or in response to seeking employment outside of India,
    • for carrying on outside India a business or vocation outside India, or
    • for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period.
  • A person who has come to or stays in India, in either case, otherwise than
    • for or in preparation for taking up employment in India, or
    • for conducting a business or vocation in India, or
    • An office, branch or agency outside India owned or controlled by a person resident in India;
  • Any person or body corporate registered or incorporated in India,
  • An office, branch, or agency in India owned or controlled by a person resident outside India,
  • An office, branch or agency outside India owned or controlled by a person resident in India;

A Person of Indian Origin (PIO)

  • PIO means an individual (not being a citizen of Pakistan or Bangladesh or Sir Lanka or Afghanistan or China or Iran or Nepal or Bhutan) who
    • at any time, held an Indian Passport or
    • who or either of whose father or mother or whose grandfather or grandmother was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955).
  • India has signed Double Tax Avoidance Agreements (DTAAs) with various countries. Taxability of Non Resident’s Indian income would be decided as per the provisions of these DTAAs. Most of these DTAAs contain provisions for lower rates of tax in case of incomes like dividend, royalties, fees for technical services etc.

Now, the Residential Status of an Individual defines what taxes they will pay in India. NRI Income Tax is deducted on the basis of your income. Let’s understand this:

  • If you are an Indian Resident, then your global income is taxable in India
  • If you are a Non-Resident Indian (NRI), then only the income generated in India is taxable
How Can MNRS Help?

MNRS provide our NRI clients with a bouquet of services. We provides Consultancy, Execution and Management Services to its NRI clients with special attention to the administrative and legal obligations they are required to meet.

MNRS has also expertise in the following NRI services:

  • Determination of your residential status in India
  • Interpretation of DTAA with a view to reduce tax liability in India
  • Handling of issues relating to inheritance, will, etc.
  • Compliances with respect to the Income-tax Act, 1961, Wealth-tax Act, etc.
  • Application for Permanent Account Number (PAN)
  • Filing of India tax return
  • Advising suitable tax saving investments