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NRIs are individuals who have a family lineage of Indian parents/grandparents but have been living outside India for more than half of the previous year and intend to do so for an indefinite period of time for the purpose of education, employment, profession, etc. There are certain conditions that NRIs must fulfill to be classified as NRIs. Having said that, we all have heard about the 182-day rule. But what does it mean, and how do we calculate 182 days for NRI in India? This article answers all your questions regarding the 182-day rule for NRIs and its calculation.
In simple terms, a Non-Resident Indian (NRI) is someone who lives in another country but is still legally considered an Indian citizen. NRIs are often called Overseas Indians because they live abroad. The Foreign Exchange Management Act 1999 (FEMA) and the Indian Tax Act have specific rules about who qualifies as an NRI for legal and tax purposes.
To elaborate, FEMA categorizes an individual as an NRI if they have gone out of India or are currently situated outside the country for reasons including employment, business engagements, vocational pursuits, or any other circumstance indicative of an extended stay abroad. This designation bears implications on their financial and tax liabilities within India, affecting their eligibility to open NRE, NRO, and FCNR accounts, as well as the taxation of domestic income.
The definition of an NRI under FEMA diverges from that defined in the Income Tax Act, which sets its bars based on the duration of an individual's physical presence in India during a fiscal year. This contrast underscores the necessity to distinguish between one's NRI status under FEMA and their residential classification as per the Income Tax Act, as it leads to disparate implications for investment and taxation.
Coming to the definition under the Income Tax Act of India, the status of a Non-Resident Indian (NRI) is defined by their physical residency within India during a financial year (April 1st to March 31st), along with the preceding years. Let’s discuss it further how it is gauged.
The residential status of an NRI in India is determined on the basis of the amount of time spent by him/her in the country during the current FY and the previous 10 FYs. The residential status is determined every year. Given below are the rules and conditions that one needs to fulfill to be able to qualify as a Non-resident Indian -
An individual classified as a Non-Resident (NR) is subject to taxation on income earned in India. This includes income earned in India, those deemed to arise in India, and income received or deemed received in India. Different rules apply to the taxation of various income types for NRs, such as dividend income and the sale of unlisted securities.
Understanding one's residential status is extremely important for complying with the tax regulations in India. Residents are liable to pay taxes on their worldwide income, including earnings outside India, whereas NRs are taxed solely on income generated within India. Therefore, accurately determining residential status is crucial to avoid discrepancies and tax liabilities.
It's important to note that tax treaties between India and other countries may supersede provisions in the Income-tax law concerning residential status and income taxation. These treaties can provide relief to individuals facing potential double taxation. Thus, consulting tax professionals to grasp the implications of tax treaties and one's residential status is advisable.
Furthermore, the Income-tax law outlines provisions for determining the residential status of companies and firms. A company's residency hinges on its place of incorporation and where its management and control are exercised. For firms, residency aligns with the residential status of its partners.
An individual's residential status is determined by their physical presence in India during a financial year and the preceding ten fiscal years. Criteria for residency vary based on whether the individual is an Indian citizen or of Indian origin. Non Resident Indians are taxed on India-sourced income, with distinct rules for different income types. Understanding these criteria and rules is crucial for compliance with the Income-tax law in India.
To calculate how many days you've been in India, you must count all the days you physically stayed in the country during the relevant financial year, including both your arrival and departure days.
For instance, if you arrived in India on July 1, 2023, and departed on December 31, 2023, you would have been in India for 184 days (from July 1 to December 31, inclusive). Therefore, you will be classified as a Resident Indian for tax purposes.
It's important to understand that determining NRI status can be a little complicated and depends on various factors. Do you also find determining your residential status intimidating for filing the Income Tax Returns? If yes, you can take help from a tax professional to make the process smoother.
When Non-Resident Indians (NRIs) invest in specific Indian assets, they face a 20% tax on the income generated. However, if this special investment income represents their sole earnings for the financial year and the Tax Deducted at Source (TDS) has been deducted accordingly, then the NRI is exempted from the burden to file an income tax return.
NRIs can apply for Form 13 with the Income Tax Department. If approved, this form allows a lower TDS rate or even a nil deduction on income received in India.
Yes, an NRI can stay in India for more than 182 days during the financial year. However, this will change his/her residential status from NRI to a resident. In other words, an NRI has to stay in India for less than 182 days in an FY in order to retain his/her NRI status.
Any income earned by way of interest on fixed deposits and savings bank accounts is subject to tax in India. However, the interest received by an NRI on his/her NRE and FCNR accounts is not taxable.
