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Non Resident Indians

BACKGROUND

Non Resident Indian (‘NRI’) is a very popular term in India and across the world. In today scenario, when Indians have expanded themselves globally whether it is employment or doing business. Hence, this term NRI is a very popular term across the world. Further, as of today, NRIs are a very important part of the whole world. According to a survey conducted by the United Nations Department of Economic and Social Affairs, India has the largest diaspora population in the world.

All these NRIs incur various financial transactions, remittances, investments, business and other kind of transactions, which are governed or regulated by Indian Laws. Hence, it is very important for them to understand the Indian Laws in relation to NRIs.

WHO IS AN NRI

In simple words (and as also defiend in Wikipaedia) an NRI is a citizen of India who holds an Indian passport and has temporarily migrated to some other country for a period of six months or more. The purpose may be employment, residence, education or any other. Similarly, a Person of Indian Origin (PIO) is understood as a person of Indian origin or ancestry who is not a citizen of India, but is a citizen of another country. A PIO might have been a citizen of India and subsequently taken the citizenship of another country, or have ancestors born in India or other countries.

Reference to Indian Laws, terms which are directly and closely related to NRIs have been defined under various nomenclatures. The most relevant terms, which need to be understood from NRIs point of view are as under:

  • — Non-Resident (under Income Tax Act, 1961)
  • — Person Resident Outside India ‘PROI’ (under Foreign Exchange Management Act, 1999 ‘FEMA’)

Hence, in other words, the legal words for NRIs, under the relevant laws (as mentioned above) are Person Resident Outside India (under FEMA) and Non-Resident (under Income Tax Act, 1961). Therefore, it is important to understand these two terms under the respective laws.

 

PROI (under FEMA) means who is not a Person resident in India ‘PRI’.

Person resident in India means:

  1. A person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include—
    1. a person who has gone out of India or who stays outside India, in either case—
      1. For or on taking up employment outside India, or
      2. For carrying on outside India a business or vocation outside India, or
      3. for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;
    2. A person who has come to or stays in India, in either case, otherwise than—
      1. For or on taking up employment in India, or
      2. For carrying on in India a business or vocation in India, or
      3. For any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;
  2. Any person or body corporate registered or incorporated in India,
  3. An office, branch or agency in India owned or controlled by a person resident outside India,
  4. An office, branch or agency outside India owned or controlled by a person resident in India;

Non resident under income-tax act, 1961 / wealth tax

The term non-resident is negatively defined under section 6 of the Income-tax Act. An individual who is not a resident under the Income-tax Act is a non-resident (generally, termed NRI). Thus, one should know the definition of a resident and if he is not a resident then he is a non-resident.

As per Income Tax Act, a person shall be resident in India in following cases:

  1. If his stay in India in the relevant financial year is 182 days or more or
  2. If his stay in India in the relevant financial year is 60 days or more, and his stay in immediately preceding 4 financial years are 365 days or more.

However, in following cases clause (b) will not be applicable:

  • — If a person leaves India for employment outside India, or
  • — If a person leaves India as a member of crew of Indian ship, or
  • — If a person of Indian Origin, who is living abroad, visits India

Hence, a person, who does not comply with abovementioned two conditions, would qualify as Non-Resident under the Income Tax Act.

As per Income Tax Act, from Resident point of view, it is also important to know that a Resident can be either Ordinary Resident (also called ‘ROR’) or Not Ordinary Resident (also called ‘RNOR’). An ROR is a person who is Resident and fulfills both the following conditions:

  • — His stay in India is 730 days or more in immediately preceding 7 financial years, and
  • — He is a Resident of India in 2 financial years out of 10 immediately preceding years.

An RNOR is who does not comply with one or both the conditions mentioned above.

The term ROR and RNOR is very relevant for NRIs migrating to India. On most occasions, the NRIs, migrating back to India, remain RNOR for two years. Hence, their foreign income remains non-taxable in India in those years.