People holding NRI status have all benefits and rights as an Indian citizen has, as- the right to vote and the right to buy land in India.
Eligibility Criteria for NRI Status
The eligibility criteria for NRI status are below:
-
An Indian citizen stays abroad for 183 days or more in one financial year.
-
An Indian citizen stays in India for less than 365 days in the last four years from the current assessment year and less than 60 days during the year.
People living outside India are classified into three categories-
-
NRI (Non Resident Indian)
The NRI status is given to Indian citizens who stay in India for less than one eighty-two days in the course of the preceding financial year. Income earned by NRIs outside India is not liable for the tax, but the source of income from investments in India is liable for tax.
-
PIO (Person of Indian origin)
This status is held by those who are foreign nationals but are of Indian origin, which means they have at any time held Indian passport, either of his parents is an Indian citizen, or he is the married spouse of an Indian citizen.
-
OCI (Overseas Citizen of India)
OCI status is given to people with foreign citizenship who have any familiar ties in India or married an Indian citizen or a former Indian citizen.
What is the NRI status?
The criteria for NRI status and Resident of India status are different in two laws- the Income Tax Act and the Foreign Exchange and Management Act. They are applied for tax classification. The income tax department determines the status of the NRI of an individual in order to analyse tax liabilities, and FEMA describes the definition of NRI for investments and transactions and the opening of a bank account.
A Resident of India Status Defined by the Income Tax Act
The Income Tax Act 1961 defines the definition of Resident of India; hence anyone who doesn't fulfil these criteria is a Non-Resident Indian.
-
According to Section 6 of the Indian Income Tax Act, an individual is deemed to be a resident of India if he stays in India for a minimum period of 182 days in the previous year, or
-
If the individual is in India for 60 days or more during the previous year or 365 days or more during the previous four years immediately before the previous year
With the new amendments made in Financial Year 2020, the period of 60 days requirement has been changed to 120 days. This is based on the condition when the Indian income of this individual is more than 15 lakhs during the financial year, and the total taxable income of NRIs in India is up to 15 lakhs to continue to be NRIs.
NRI Status Defined by FEMA
According to Foreign Exchange Management Act, an NRI is the person resident outside India for an uncertain period for the purpose of employment, business, or vocation; who is either a citizen of India or is a person of Indian Origin (PIO).
FEMA requires one additional day (183 days) to count towards non-residence than the tax test is essential. An NRI should spend no more than 181 days if he wants to be a non-resident for tax purposes and an NRI under FEMA.
Resident but Not Ordinary Resident (RNOR) is another type of residential status. It is given to people who have been Non-Resident in India for nine out of ten financial years preceding that year, or people who have been in India for a period of a total of 729 days or less during seven previous years, preceding that year.
With the new amendments made in the financial year 2020-21, people having taxable income more than 15 lakhs, stay in India for 120 days or more, not over 182 days, and are resident individuals, will assume RNOR status.
Double Tax Avoidance Agreement
Sometimes while transferring money, NRIs may have to face double taxation issues in their home country and their source country. In this case, signing the treaty DTAA between the home country and the source country can avoid this issue. It can be understood this way- if income is generated in India, one can avail the benefit by applying for a Tax Residency Certificate. One has to submit it along with Form 10F and PAN. However, in case of interest income goes to an NRI account, one has to pay 20%+surcharge and cess applied on the tax amount.
Can an NRI Continue with a Resident Saving Bank Account?
As per FEMA guidelines, an NRI cannot have a Resident Saving Account in their name; however, several bank account options are available for NRIs. Once one gets the status of NRI, he needs to inform the bank to get his savings bank account converted into an NRO account.
An NRI may have to bear penalties if he continues with a resident savings account despite the change of status.
Conclusion
Change in residential status brings massive changes in your way of living and managing your finances. There are many beneficial activities when you are a resident Indian or NRI, while some are not, so it is essential to consult the expert and prepare a checklist of what you need to do and what you need not do. For NRIs, investing funds in India provides financial security to their families and their future when returning to India. It is always advisable to be aware of the amendments in laws so that one can avail of applicable benefits.
Invest 18k/month & get 2 Crore# on maturity
Manage your funds online60k + happy customers across 25+ countries
Compare & Choose 30+ Plans and 150+ Fund options
