Taxes collected from citizens are the foundation of the Indian economy. NRI taxation under the Indian Income Tax Act, 1961 applies to those earning income outside the home country. The income tax rules and perks allowed to them are drastically different from those applicable to resident Indians. The income of a non-resident Indian (NRI) earned in India is taxable. Whether a person will be classified as NRI or not will depend on the number of days he or she has stayed in India and the quantum of income earned.Tax on an individual’s income depends on the source of such income and the residential status in India. The residential status of an Indian citizen needs to be determined individually for every financial year which may vary from year to year. Who is a Non-Resident? “Non-Resident” is a person who has not been residing in India for a specified period of time. The Residential Status of an individual in a given year determines whether the individual is a Resident or Non-Resident for the year. Non-Resident Indian (NRI)” is an individual who is a citizen of India or a person of Indian origin and who is not a resident of India. In India, Non-Resident Indians are mainly governed by two Acts- The income Tax Act, 1961 & Foreign Exchange and Management Act, 1999(FEMA). The term “Non-Resident Indian” is defined differently under both acts. However, one needs to understand that for the purposes of Income-tax, the FEMA Act holds no relevance, and you just need to conform to the provisions of the Income Tax Act 1961. Person of Indian origin (PIO) – A person is said to be of Indian origin if he or any of his parents or any of his grandparents were born in undivided India. Types of Non-Resident Under the Income Tax Act 1961, a non-resident is broadly classified under the following three heads: Non-Resident Indian/Person of Indian Origin Foreign Company Other Non-Resident Person How do I determine my residential status? You are considered an Indian resident for a financial year if you satisfy any of the conditions below: When you are in India for at least 6 months (182 days to be exact) during the financial year You have been in India for 2 months (60 days) in the previous year and have lived for one whole year (365 days) in the last four years. Note: If you are an Indian citizen working abroad or a crew member on an Indian ship, only the first condition is available to you – which means you are a resident when you spend at least 182 days in India. The same applies to a Person of Indian Origin (PIO) who visits India. The second condition does not apply to these individuals. A PIO is a person whose parents or any of his grandparents were born in undivided India. If you do not meet any of the above conditions, you are a Non-Resident Indian. Resident but Not-Ordinary Resident (RNOR) definition amended Individuals will be considered as RNOR for the year if they meet the following conditions: If you’ve been a non-resident in India for 9 years out of 10 previous years preceding the year of consideration, or If you have stayed in India for 729 days or less during 7 previous years preceding the year of consideration The Finance Act 2020 has amended the residency provisions to include Indian Citizen/Person of Indian Origin, who comes to visit India and shall now be considered as RNOR subject to the following conditions: Total income other than foreign income is Rs 15 lakh or more The individual has stayed in India for more than 120 days but less than 182 days in the previous year The individual has stayed in India for 365 days or more in four years preceding the previous year Before this amendment, such individuals were classified as non-residents. Due to the amendment mentioned above, the individual’s residential status may be classified as RNOR, which will lead to loss of DTAA benefits, increased scope of total income for taxability, loss of various exemptions allowed, etc. It is to be further noted that in the above amendment, an individual staying for more than 182 days shall be classified as a resident irrespective of the level of income in the previous year. Deemed residency status introduced in Finance Act 2020 Finance Act 2020 introduced the concept of ‘Deemed residency’. According to this, Citizens of India earning more than Rs 15 lakh from Indian sources shall be deemed a resident of India if they are not liable for payment of taxes in any other country. The deemed residents shall be classified as RNOR with effect from the financial year 2020-21. This amendment was brought into force to tax the incomes of Indian citizens who are not liable to pay tax in any country. Special relief due to COVID lockdown For FY 2019-20, if individuals have come to India on a visit before 22nd March 2020 and they are: Unable to leave India because of lockdown on or before 31st March 2020– the period of stay from 22nd to 31st March shall not be considered. Quarantined due to COVID-19 on or after 1st March 2020 and departed on an evacuation flight on or before 31st March 2020, or unable to leave India- the period of stay from the beginning of quarantine to 31st March shall not be considered. Departed on an evacuation flight on or before 31st March 2020– the period of stay from 22nd March 2020 to the date of departure shall not be considered. Is my income earned abroad taxable? An NRI’s income taxes in India will depend upon his residential status for the year as per the income tax rules mentioned above. If your status is ‘resident’, your global income is taxable in India. If your status is ‘NRI,’ your income earned or accrued in India is taxable in India. Salary received in India or salary for service provided in India, income from a house property situated in India, capital gains on transfer
