Tax Liability of a Non Resident Indian (NRI)

In India, the tax liability of any individual is based on his residential status. There are three types of residential status under Income Tax Act 1961,

  • Resident (ROR)
  • Resident but Not Ordinarily Resident (RNOR)
  • Non-Resident (NR)

Non Resident Indian (NRI)

The Income Tax Act 1961 does not expressly define an Non Resident Indian (NRI), but provides a detailed criteria of who is considered a resident of India. Therefore, anyone who does not meet that criteria is considered an NRI.

Under Section 6(1) of the Income Tax Act an Individual is said to be resident in India if he fulfill any of the following conditions:

  • If he/she stay in India for a period of 182 days or more in a financial year, or He/ She is in India for a period of 60 days or more in a financial year and
  • If he/she stays in India for a period of 365 days or more during the 4 years immediately preceding the previous year.

In case a person is an Indian citizen working abroad or a crew member on an Indian ship, only the first condition is applicable to the person. This means that a person becomes a resident when he spends at least 182 days in India.

Finance Act Amendment 2020

The Finance Act 2020 has amended the residency provisions for income tax purposes to include Indian Citizen/Person of Indian Origin, who comes to visit India shall now be considered as RNOR subject to the following conditions:

  • Total income other than foreign income is Rs 15 lakh or more,
  • The individual has stayed in India for more than 120 days but less than 182 days in the previous year, or
  • The individual has stayed in India for 365 days or more in four years preceding the previous year

Before this amendment, such individuals were classified as non-residents. However, now the individual’s residential status may be classified as RNOR, which will lead to loss of DTAA benefits, increased scope of total income for taxability, loss of various exemptions allowed, etc.

It is to be further noted that in the above amendment, an individual staying for more than 182 days shall be classified as a resident irrespective of the level of income in the previous year.

Tax liability for NR 

The tax burden of NRIs in India is limited to the income they make in the country. They are not required to pay any tax in India on their international earnings. They are only taxed on the income earned in India.  In case when the same income is taxed both overseas and India, the NRI may look for relief under the Double Taxation Avoidance Agreement (DTAA) if India has signed with the other nation to avoid paying taxes twice.

Income from SalaryIncome from salary will be taxable for an NRI only if such income is earned by the services rendered in India. Thus, a person may be an NRI, but if his salary is paid towards services provided in India, it shall be taxed in India immaterial of the place where the income is received. Whereas in case the income received is not from the services rendered in India, the income shall not be taxable in India.
Income from house propertyIncome from a property that is situated in India is taxable in the hands of an NRI.The calculation of such income shall be in the same manner as applicable to a resident.
Income from other sourcesInterest income from fixed deposits and savings accounts held in Indian bank accounts is taxable in India. Interest on Non Resident External Account (NRE) and FOREIGN CURRENCY (NON RESIDENT) ACCOUNTS (BANKS) SCHEME (FCNR) accounts is tax-free. Interest on NRO accounts is fully taxable.
Income from business and professionAny income earned by an NRI from a business controlled or set up in India is taxable.
Income from capital gainsAny capital gain on transfer of capital asset which is situated in India shall be taxable in India. Capital gains on investments in Indian shares, securities shall also be taxable in India.