NRI Income

The taxation of income of a person as per Income Tax Act, 1961 does not depend on citizenship of a person. It depends upon residential status of the individual in the financial year. The residential status is defined under Income Tax Act 1961 and it should be assessed every year. So, whether the income of Non resident is taxable in India can be answered by determining the residential status of the person.

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Determining Residential Status

An Individual is considered to be 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.

The second condition is not applicable to the following cases-

  • Indian citizen leaving India for an employment outside India during the financial year.
  • Indian citizen being a crew member of Indian ship leaves India during the financial year.
  • Indian citizen/Person of Indian Origin (PIO) engaged in business or employment outside India visiting India during the financial year.

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)

Further, individuals will be considered 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 concept of deemed residency was introduced in Finance Act 2020. According to this, Indian citizen earning more than Rs 15 lakh from Indian sources shall be deemed a resident of India (resident but not ordinary resident) if they are not liable for payment of taxes in any other country. This became applicable from FY 2020-2021.

The deemed resident shall always be resident but not ordinary resident (RNOR).

Optional scheme for long term capital gains/interest income on foreign assets (sec 115C to 115I)

  1. This scheme is optional for NRI (Non resident Indian citizen/ Person of Indian origin) who purchases/ acquires following assets in foreign exchange (foreign exchange assets):
  • Shares of an Indian company
  • Debentures of an Indian public company
  • Deposits with banks and Indian public companies
  • Central Government securities
  • NSC VI and VII issues
  • Any other assets as may be notified by Central government

Under this scheme tax on long term gains of is paid @ 10% and tax on interest income is paid @ 20% in respect of foreign exchange assets.

For long-term capital gains made from the sale or transfer of these foreign assets/interest income earned on such assets, there is no benefit of indexation and no deductions allowed under any provisions of income tax.

But exemption can be availed on long term capital gain under Section 115F when the gain is reinvested back into the foreign exchange assets with a lock-in period of 3 years.

In this case, capital gains are exempt proportionately if the cost of the new asset is less than net consideration.

The above benefits may be available to NRI even when they become a resident – until such an asset is converted to money and upon submission of a declaration by the NRI to apply the special provisions to the assessing officer.

The NRI may choose to opt out of these special provisions, and in that case, the income (investment income and LTCG) will be charged to tax under the regular provisions of the Income Tax Act.

Exemption from filing return of income

Income tax return is not required to be filed by NRI if total income includes only interest income and LTCG and TDS has been deducted on such income.