Non-Resident, NRI, Residential Status Determination – CA Services

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 defined in Wikipedia) 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. Sometime, PIO is also called Overseas Citizen of India (OCI). So, at various places in laws, NRI, PIO, OCI are used.

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:

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

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.

Resident or Non-Resident Under FEMA i.e. RBI REGULATIONS

Under RBI Regulations a Resident is named as Person Resident in India (PRI) and Non-Resident is named as Person Resident Outside India (PROI). Here is the term defined as PRI. Hence, a person who is not PRI (Resident) he is PROI (Non-Resident)

Person resident in India (PRI) means:

Non Resident under Income Tax Act, 1961

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.

Resident

As per Income Tax Act, the basic law of Resident is that a person shall be Resident in India in following cases:

(a) If his stay in India in the relevant financial year is 182 days or more or

(b) 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 i.e. criteria of 60 days will not apply:

1. Indian Citizen leaves India for employment outside India. He will be resident in India if his stay in India is 182 days or more in a financial year. or
2. Indian Citizen leaves India as a member of crew of Indian ship. He will be resident in India if his stay in India is 182 days or more in a financial year. or
3. NRI (Indian Citizen living abroad) or Person of Indian Origin (PIO) (living abroad) visits India, whose total income from Indian source is within Rs 15 Lakh. He will be resident in India if his stay in India is 182 days or more in a financial year.  or
4. NRI (Indian Citizen living abroad) or Person of Indian Origin (PIO) (living abroad) visits India, whose total income (other than from foreign source) is more than Rs 15 Lakh. He will be resident in India if stays in India for 120 days or more in a financial year (Budget 2020 Amendment)

Hence, in case of above 4 cases, a person will be Resident in India if his stay in India is 182 days or more (120 days or more in case 4).

Non-Resident

Hence, a person, who does not fulfill the conditions of ‘Resident’ as mentioned above, he/she would qualify as Non-Resident under the Income Tax Act. In other words, a person who is not a Resident, is a Non-Resident.

Deemed Resident (Budget 2020 Amendment)

A new clause has been inserted by Budget 2020 (as passed by Parliament). It says that An Indian Citizen, whose total income (other than foreign source) exceeds Rs 15 Lakh in a year, shall be Deemed Resident of India if he is not liable to tax in any other country or territory by reason of his domicile or residence or any other criteria of similar nature. In other words, if an Indian Citizen, whose Total Income (other than foreign source) exceeds Rs 15 Lakh, and he is not a tax resident of any country in the world, then he/she will be Deemed Resident of India.

Resident Ordinary Resident (ROR) or Resident Not Ordinary Resident (RNOR)

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 not an RNOR. In following cases, a person will be RNOR (i.e. he can be Resident but he will be Not Ordinary Resident):

1. His stay in India is less than 730 days in 7 years preceding the concerned year. In other words, stay in India is up to 729 days in the 7 years preceding the year for which residential status is being determined.
2. He is Non-Resident in India in 9 years out of 10 years preceding the concerned year.
3. NRI or PIO (living abroad) [whose total income (other than from foreign source) exceeds Rs 15 Lakh], whose stay in India is 120 days or more in a year, but it is less than 182 days. In other words, If an NRI or PIO (Indian Income > 15 Lakh Rs) is determined as Resident of India in a year because of his stay in India for 120 days ore more (category 4 of Resident Status above) but stay is less than 182 days then that person will be determined as Not Ordinary Resident (NOR) (Budget 2020 Amendment).
4. Deemed Resident [i.e. Indian Citizen, whose total income (other than foreign source) exceeds Rs 15 lakh in a year and he is not a Resident of any country] (Budget 2020 Amendment).

An ROR is one who does not comply with above condition mentioned above. Also, in other words, a Resident, whose stay in India is 730 days or more in preceding 7 years and also he is Resident for 2 years or more in preceding 10 years, he will be ROR (Point No 1 & 2 – General Cases).

Importance of RNOR: RNOR term is important for NRIs, Returning NRIs etc, as RNOR need to pay tax on foreign source income. Also, RNOR need not to report their foreign assets in the Income Tax Return in India. There are many other benefits as well. On most occasions, the NRIs, migrating back to India, remain RNOR for two (2) years. Hence, their foreign income remains non-taxable in India in those years.

Note: Here it is important to note that there are differences in the Residential Status provisions as proposed in Budget 2020 as presented (on Feb 1, 2020) Vs as passed by Parliament (on March 23, 2020).

General FAQs – NRI, Non-Resident Residential Status, NRI UNDER RBI REGULATIONS – NRIs, OCIs, PIOs, Foreign Citizens etc

Q: What are the changes made in budget 2020 in relation to residential status? Whether the initial budget 2020 proposals are changed at the time of passing that in parliament? Does IT affect NRIs, PIOs, OCIs?

Ans: Budget 2020 provided few changes in the Residential Status. Important thing to know about these changes are that Finance Minister has proposed some changes in the Budget (Feb 1, 2020), however, when it was finally passed in parliament (March 23, 2020) the changes were quite different. Actually, the initial budget proposals were affecting a mass level of NRIs, PIOs living abroad. There was a noise from media section, NRIs, PIOs worldwide on the same. However, on realizing the same, Finance Ministry has issued a clarification on February 2, 2020. However, to simplify the things for mass level of genuine NRIs, PIOs, in final budget, the Finance Ministry has changed is very much. The final changes in the budget 2020 can be checked in our blog section i.e. Budget 2020 Residential Status Changes Impact on NRIs, PIOs, OCIs, Foreign Citizens etc.

Q: What are the Corona Virus relaxations provided by Govt of India for Residential Status determination in relation to FY 2019-20? How this will benefit Non-Residents (NRIs, Foreign Citizens)? 

Ans: Vide Circular No 11 of 2020, Dated May 8, 2020, CBDT (Ministry of Finance – Govt of India) has provided relaxations wrt FY 2019-20 to Individuals who came India for a visit before March 22, 2020. Relaxations for Non-Resident Residential Status Determination are as under:

• has been unable to leave India by March 31, 2020. In this case, March 22, 2020 to March 31, 2020 shall not be considered for Residential Status Determination.
• Quarantined in India (due to corona virus) on or after March 1, 2020. In this case, period beginning from quarantine date to his departure date (or March 31, 2020) shall not be considered for Residential Status Determination.
• Departed in evacuation flight on or before March 31, 2020. In this case, period of stay from March 22, 2020 to Date of Departure shall not be considered.

Above relaxations shall directly benefit those Non-Residents (NRIs, PIOs, OCIs, Foreign Citizens), who were visiting India during corona virus and could not fly back or got quarantined (due to corona virus), then those days shall be excluded from their India stay period for Residential Status determination for FY 2019-20.

Q: I am an NRI. Due to Corona Virus I have stuck in India and could not fly back to my work country. What will be its impact on me? What are the Corona Virus related relaxations for determination of Residential Status of NRIs, Foreign Citizens, Seafarers? How FY 2020-21 will be impacted? If I be a Resident in India so shall I have to pay tax on my global income in India?

Ans: In relation to FY 2020-21 (April 1, 2020 to March 31, 2021), there are many foreign citizens, NRIs, seafarers and others have stuck in India. They could not travel back and due to same their stay in India exceeds or expected to exceed 181 days. Hence, they are supposed to be determined as Resident In India as per the Income Tax provisions of India. Now, here there can be relief available to them within the tax provisions where they will not be taxed for their foreign income. Also, there may be conditions that they can avoid being determined as Resident. Further, there is an expectation from Govt of India also that they will be coming out with a circular to provide relief to those NRIs, Foreign Citizens and others who could not travel back due to unavoidable circumstances. Further, they can seek separate advise on this to find out a way as per the facts of their case.