Non Resident Indian (NRI)

The residential status of an individual or HUF or a company is of great importance in Indian Income Tax Act as the liability to pay tax in India does not depend on the nationality or domicile of the Tax payer but on his residential status. 

An individual is treated as a resident if any of the following conditions are satisfied:

(i) He stayed in India for 182 days or more during the previous year, or

(ii) He stayed in India for 365 days or more during the four preceding years and stays in India for at least 60 days. 182 days in case of an Indian citizen or a person of Indian Origin coming on a visit to India or 182 days in case of an Indian citizen going abroad for an employment during the previous year.

Hindu Undivided Family (HUF) or Firm or other Association of persons is resident of India except in cases where the control and management of its affairs is wholly situated outside India in the previous year.

A company is resident in India if it is an Indian company, or during the previous year, the control and management is situated wholly in India.

Tax Benefits for NRI’s in India

As per the Income Tax Act, all sources of income other than agricultural income are taxable incomes. Therefore these are applicable on all the resident citizens who earn their income in India. In the case of NRI (Non Residential Indians), you are only liable to pay taxes for the income that is earned or deemed to be earned in India.  

As per the Income Tax Act, the residential status itself determines if at all you are required to pay taxes or not.

The Income tax department classifies an individual to be a non-resident when:

  • You reside outside India for a period of 182 days or more during the relevant previous year.
  • You are not present in India for 60 days or more during the previous year and again for a combined total of 365 days or more during the previous 4 years prior to the previous year.

Your status of being a resident or a non-resident Indian depends on the above criterion. For example, while you are an NRI, you were physically present in India for more than 182 days during one financial year. In such a case you will be considered as a resident when it comes to taxes and you are obliged to pay taxes to the Indian government for the income earned in India, if any for that year. Thus an NRI is liable to be taxed only for income or capital gains earned in India.

Taxable incomes for NRIs include:

Salary: Income earned from your salary in India or income received on your behalf is taxable.

Property and Assets: Any income or capital gain that you generate from the sale/ rent or lease of a valued property or an asset based in India will be taxed as per the Income Tax rules.

Securities and Investments: Income or capital gains from long-term or short term investments are liable to be taxed.

Non-Residential Indians are liable to pay taxes to the government on their income from salaries, assets or from investments or securities held in India. If you are an NRI with your income sourced in India, you have to file your tax returns. Presently, as per Income Tax Act, 1961 and Foreign Exchange Management Act (FEMA), you qualify to pay taxes in case you fulfil either of the following conditions:

  1. Your taxable income in India during a particular financial year is more than the exemption limit of Rs 2 lakh.
  2. You have earned short-term or long term capital gains from sale of any investment or property, even if the gains are less than the exemption limit.