Non Resident Indian - NRI definition - Income Tax Act and FEMA Rules

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Who is Non Resident Indian / Who is NRI / Define NRI

(as per FEMA and Income Tax Act)

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Non Resident Indian in a layman's language means an Indian who stays abroad. However, as per law it is quite confusing as different Acts give different definitions for the same. Two definitions most popularly used are :

(1) NRI under Foreign Exchange Management Act 1999 (FEMA)

(2) NRI under Indian Income Tax Act, 1961

Non Resident Indians under FEMA :-

An Indian Citizen who stays abroad for (a) employment/ carrying on business or (b) vacation outside India or (c) stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a non-resident. Persons posted in U.N. organizations and officials deputed abroad by Central/ State Government and Public Sector Undertakings on temporary assignments are also treated as non-resident.

Non-resident foreign citizens of Indian Origin are treated on par with non-resident Indian citizens.

Who is a person of Indian Origin? :-

For the purpose of availing of the facilities of opening and maintenance of bank accounts and investments in shares/ securities in India:

A foreign citizen ( other than a citizen of Pakistan or Bangladesh ) is deemed to be of Indian Origin, if,

he, at any time, held an Indian passport,
(ii) he or either of his parents or any of his grand parents was a citizen of India bu virtue of the Constitution of India or Citizenship Act, 1956( 57 of 1955)

A spouse( not being a citizen of Pakistan or Bangladesh ) of an Indian citizen /Indian origin is also treated as a person of Indian origin provided the Bank accounts are opened or investments in shares/securities in India are made by such persons jointly with their NRI spouses.

B. For Investment in immovable properties:

A foreign citizen ( other than a citizen of Pakistan, Bangladesh, Afghanistan, Bhutan, Sri lanka or Nepal ), is deemed to be of Indian origin if,

(i) he held an Indian passport at any time, OR
(ii) he or his father or paternal grand-father was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 ( 57 of 1955).

NON RESIDENT INDIANS UNDER INCOME TAX ACT :

The laws in this regard are quite complicated as these it does not define who is non resident. Rather these define who is resident and who are not ordinarily resident. Therefore, if a person does not fall in the category of resident or not ordinarily resident, he / she will be non-resident.

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. Residential Status is determined on the basis of physical presence i.e. the number of days of stay in India in any year. There are three types of status based on the stay in India:-

(1) Resident:

An individual is 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 atleast 60 days 9 182 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.

Stay in India for the above criteria may be continuous or intermittent.

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

(c) A company is resident in India if-

it is an Indian company, or
9ii) during the previous year, the control and management is situated wholly in India.
A person resident in India, in a previous year in respect of any source of income shall be deemed to be resident in India in respect of his other sources of income.

(2) Non-Resident

A person is non-resident if he is not resident in India.

(3) Resident but not ordinarily resident

An individual or an HUF is treated to be not ordinarily resident in India in any previous year if he or the manager of HUF-

has not been resident in India in 9 out of 10 previous years preceding the previous year; or
has not during the seven previous years preceding that year, been in India for a period of or periods amounting in all to 730 days or more.
Thus according to condition in clause (a) a newcomer to India would remain not ordinarily resident in India for the first 9 years of his stay in India. Similarly, in case where a person who is resident in India goes abroad and ceases to be resident in India for at least 2 years, he would upon his return, be treated as, not ordinarily resident for the next 9 years.

How the residential status of a person is determined :-

In case of Indian citizen who leaves Indian during previous year for the purpose of employment :-

Such a person is resident in India if he satisfies the following conditions:

He stays in India for at least 182 days during the previous year.
He is resident in India for at least 9 out of 10 years preceding the previous year.
He is resident in India for at least 730 days during 7 years preceding the previous year.
If such a person satisfies condition (a) but does not satisfy either of the conditions at (b) or (c) above, such a person would be resident but not ordinarily resident.

Such person would be non-resident if he does not satisfy condition (a) stated above.

In case of Indian citizen or a person of Indian origin living abroad comes to India for a visit during the previous year

The residential status of such a person is to be determined after looking into the following

He stays in India for at least 182 days during the pervious year and,
He is resident in India for at least 9 years out of 10 years preceding the previous year.
He is resident in India for at least 730 days during seven years preceding the previous year.

The person would be resident in India if he satisfies all the conditions (a) to (c) above.

The person would be resident but not ordinarily resident if he satisfies the condition at (a) but does not satisfy any or either of the conditions at (b) and (c) above.

The person would be non-resident if he does not satisfy the condition at a) above.

Thus condition (a) is of fundamental importance and must be satisfied to be resident in India. Conditions ( b) and (c) only help to qualify that resident status.

In case of any other individual

For individuals other than those included in category ( I ) or (ii), we have to look into the following four conditions to determine the residential status:

He stays in India for at least 182 days during the previous year.
He stays in India for at least 60 days during the previous year and for at least 365 days during 4 year preceding the previous year.
He is resident in India at least in 9 out of 10 years preceding the previous year.
He is resident in India for at least 730 days during 7 years preceding the previous year.

A person would be resident in India if he satisfies any of the conditions at (a) or (b) and both the conditions at (c) and (d) i.e. he either satisfies conditions (a) , (c) and (d) or (b), (c) and (d).

A person would be resident but not ordinarily resident if he satisfies either of the conditions at (a) or (b) and does not satisfy both or either of the conditions at (c) and (d). In other words, if a person satisfies condition (a) or (b) only but does not satisfy either (c) or (d) or both, he would be treated as resident but not ordinarily resident in India.

If a person satisfies neither of the conditions (a) or (b) , he is non-resident.