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Who are NRIs?

Most of the people have a doubt in their mind that are they an NRI or a resident of India. There are some common questions in the minds of people like, if they are living abroad for a particular duration say about a year or going abroad for a 6-month work assignment, then will they be called an NRI or not. To get answers to these question we need to first understand what an NRI is and on what basis does a person become an NRI.
In simple words, a ‘Non-resident Indian’ (NRI) is a person resident outside India who is a citizen of India. Citizen of India means a person who has citizenship of India. And resident outside India means a person not residing in India. As the name suggests Non-Resident Indian is a not a resident of India. And to understand whether a person is a resident or a non-resident we need to understand the concept of residential status.

How to determine that an Individual is NRI

‘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.

However, condition No. 2 does not apply where an individual being citizen of India or a person of Indian origin, who being outside India, comes on a visit to India during the previous year.
A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand parents, was born in undivided India.
So a person is an NRI if he does not meet any of the above conditions.
Example: Mr Kishan is an Indian citizen and usually travels to the US for business purpose. He nearly stays for about 2 months every year in India and for the rest of the time, he stays in the US. If we calculate the number of days he stays in India each year it would around 60 days. He does not meet any of the above conditions i.e. he is not in India for a period of 182 days or more in the previous year and he is also not 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. So Mr Kishan is an NRI.

How does residential status affect tax liability?

The following chart highlights the tax incidence in case of different persons:

 
(*)  ROR means resident and ordinarily resident.
RNOR means resident but not ordinarily resident.
NR means non-resident.
 
The residential status of a person largely affects his/her tax liability.

• If a person is a resident of India the all types of income whether domestic or foreign are taxable.
• A not ordinarily resident has to pay tax on all types of income except income accrued outside India from a business controlled or a profession set up outside India.
• A non-resident will have to pay tax only on those incomes that are received or accrued in India. He is not required to pay taxes on income earned abroad.

Meaning of various terms

1. Income received in India

If the income is received for the first time by the assessee or his agent in India then such income will be regarded to be received in India.

2. Income deemed to be received in India

Following incomes are treated as incomes deemed to be received in India:

• Interest credited to recognized provident fund account of an employee in excess of 9.5% per annum.
• Employer’s contribution to the recognized provident fund in excess of 12% of the salary of the employee.
• Transferred balance in case of re-organisation of an unrecognized provident fund.
• Contribution by the Central Government or other employer to the account of the employee in case of notified pension scheme referred to in section 80CCD.

3. Income accrued or arise in India

Any income received in India or the law deems it to be received in India by you or on your behalf OR Any income that accrues or arises in India when the assessee obtains the right to receive the income whether it has been actually received or not.

4. Income deemed to be Accrued or Arise in India

It is such income which is deemed to be accrued according to the rules and law, but that is not accrued actually.
Following incomes are treated as incomes deemed to be accrued or arise in India

• Capital gain arising on transfer of property situated in India.
• Income from business connection in India.
• Income from salary in respect of services rendered in India.
• Salary received by an Indian national from Government of India in respect of service rendered outside India. However, allowances and perquisites are exempt in this case.
• Income from any property, asset or other source of income located in India.
• Dividend paid by an Indian company.
• Interest received from Government of India.
• Interest received from a resident is treated as income deemed to have accrued or arisen in India in all cases, except where such interest is earned in respect of funds borrowed by the resident and used by resident for carrying on business/profession outside India or is in respect of funds borrowed by the resident and is used for earning income from any source outside India.
• Interest received from a non-resident is treated as income deemed to accrue or arise in India if such interest is in respect of funds borrowed by the non-resident for carrying on any business/profession in India.
• Royalty/fees for technical services received from Government of India.
• Royalty/fees for technical services received from resident is treated as income deemed to have accrued or arisen in India in all cases, except where such royalty/fees relates to business/profession/other source of income carried on by the payer outside India.
• Royalty/fees for technical services received from non-resident is treated as income deemed to have accrued or arisen in India if such royalty/fees is for business/profession/other source of income carried by the payer in India.

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