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“Overseas Indians, officially known as Non-Resident Indians (NRI/NRIs) or Persons of Indian Origin (PIO/PIOs), are people of Indian birth, descent or origin who live outside the Republic of India. According to a Ministry of External Affairs report, there are 28 million NRIs and PIOs residing outside India. According to the United Nations Department of Economic and Social Affairs, India remains the largest country of origin for expatriates and immigrant communities with a 17.5 million-strong diaspora across the world.”
So, as we can see this is a very large community. However, the definitions of who qualifies as an NRI, Resident & Not Ordinary Resident (RNOR) and Resident Indian are at times not very clear and can be confusing. This blog attempts provide all these definitions together and why it is important to understand them both from investment and tax perspective. Once this is done, sometime in future, we will discuss investments – why should NRIs invest in India, what are the different types of accounts and different avenues available for investments, taxation aspects and a lot more.
An Indian staying abroad is popularly and very loosely termed as a Non-Resident Indian (NRI). NRI is legally defined under Foreign Exchange Management Act, 1999 (FEMA) (for investments purpose) and the Income Tax Act, 1961 (for taxation purpose).
A person is a Resident of India if he stays for 183 days or more in India during the preceding financial year starting from 1st April to 31st March. Else, he shall be considered as a Non-Resident.
There are a few exceptions. Wherein he will be considered as resident outside India, even though the above number of days condition is not met. Whether days are more or less in India, it does not matter.
Similarly, a person is considered as an Indian Resident if in India for employment or business even though the duration may be less than 182 days in that financial year.
A Person is considered as Indian Resident if ANY of the following two conditions are satisfied:
Condition 2 ensures that most people going abroad for the first time will not be eligible for NRI status. However, there is an exception that if the person is leaving India for employment or as a member of crew of Indian merchant ship. For such cases, 60 days in condition 2 is replaced by 182 days. If one or none of the above conditions are satisfied, then the person is considered as an NRI.
There is another exception that for Indian Citizens or persons of Indian Origin (PIO) who stay abroad but are on a visit to India. the period of 60 days in Condition 2 is replaced by 182 days. Finance Bill 2020 has added a caveat to this sub-clause. If the Indian income (income other than income from foreign sources) of such tax payers is greater than Rs 15 lacs, the period of 60 days in Condition 2 shall be substituted by 120 days (and not 182 days).
However, a Resident could be either of these two types:
If you are not a Resident and Ordinarily resident (ROR), you can still be RNOR if ANY of the following conditions are satisfied:
Person of Indian Origin (PIO):
Citizen of any country other than Pakistan and Bangladesh with:
Overseas Citizenship of India (OCI):
The Indian Constitution does not permit full dual citizenship. The OCI card is effectively a long-term visa, with restrictions on voting rights and government jobs. The card is available to certain PIOs, and while it affords holders residency and other rights, it does have restrictions, and is not considered to be any type of Indian citizenship from a constitutional perspective.
Simply put, FEMA decides where you can invest and from which bank account (Savings bank or Nor Resident accounts (more on that later in the future blogs). Your resident status as per the Income Tax Act is not important when it needs to be decided whether you can make a particular investment in India. FEMA looks at your intent. If you are moving to abroad, if the intention of settling down there, then the fact that you have moved out of India, you are an NRI.
Income Tax Act decides how the income from various investments will be taxed. It does not care whether you are an NRI from FEMA perspective or not. The provisions of the Income Tax Act would decide how the income from various types of bank accounts will be taxed. Income Tax Act looks at it mathematically to determine whether the person in an RNO or not. Income Tax Act merely considers number of days of stay in India.
When it comes to Income Tax Act, you are either resident or non-resident for the entire financial year i.e. you cannot be resident for part of the year and non-resident for rest of the year. But from FEMA perspective, you can be an NRI as well as a resident Indian for different parts of the year. Also, you could be an NRI from Income tax perspective but not from FEMA, or vice versa or from both.
An NRI permanently settled and residing outside India will continue to be treated as an NRI under FEMA irrespective of the number of days of his stay in India or otherwise.
How does it matter?
Hope, this blog has been useful for you to know the basic definitions for each of the categories if you are an NRI or are planning to become one. Here is a disclaimer that I am not an expert on this topic and my knowledge is limited. Therefore, you are advised not to make any investment decisions on this basis and are advised to consult an expert or seek professional advice.
I do investments in India for NRIs through an online platform and if you would like to do so, then please contact me. If you would like to read more blogs on personal finance, then please do follow my website blog or my you tube channel.