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When discussing Non-Resident Indians, the first thing that comes to mind is a lavish lifestyle, affluent status, and privileges. Though not wrong, the status of an NRI goes beyond this caricature.
An NRI is someone who is an Indian citizen but has been residing outside India for more than half of the previous financial year due to professional or personal reasons. In this article, you will learn everything about the NRI definition, the NRI full form in English, the benefits given to them, and the limitations they face because of their status.
What is Non-Resident Indian (NRI)?
In simple words, a Non-Resident Indian (NRI) is a person residing in a foreign country with the status of an Indian citizen. NRIs are also referred to as Overseas Indians because they reside overseas. The Foreign Exchange Management Act 1999 (FEMA) and the Indian Tax Act have outlined specific guidelines defining NRI meaning for legislative and tax purposes.
Under FEMA, the NRI definition hints at someone who resides outside India as an Indian citizen or as a Person of Indian Origin (PIO). The law defines an NRI as a person who:
● Stays in India for less than 182 days during the preceding financial year, or
● Has moved out of India or staying abroad for employment purposes, or
● Has gone out of India or is staying abroad for business-related activities or vocational purposes, or
● Has moved out of India or is staying abroad for any other objective hinting towards their intention of staying outside India for an unspecified period.
For navy officers or traders who work in international waters, the tenure of stay depends on the territory. For instance, if the person spends more than 183 days in foreign territorial waters, they are considered an NRI.
However, if they reside for a major part of the financial year in Indian territorial waters, they are considered Indian citizens. Students of Indian origin studying in universities outside India acquire the status of a Non-Resident Indian and have to abide by the legal regulations accordingly.
What Is the Full Form of NRI?
The full form of NRI is Non-Resident India. Indian citizens living abroad are categorised into three distinct categories of “Non-Resident Indians (NRIs),” “Overseas Citizens of India (OCIs),” and “Persons of India Origin (PIOs).” Each category has specifications and guidelines that help the Indian government classify them when ascertaining their rights, duties, and status.
Interestingly, no particular applicability procedure exists to classify a person as a Non-Resident Indian. Any person who fulfils the eligibility guidelines mentioned above, as specified by the government, is bestowed with the status of a Non-Resident Indian. Some essential requirements to be followed by NRIs are:
● Indian passport: An NRI must possess a legitimate passport issued by the Indian government.
● Citizenship: NRIs must hold the status of an Indian citizen as given under the Act of Citizenship, 1955. For this purpose, you, your parents, or your grandparents must have Indian citizenship.
● Spouse: You must be the spouse of an Indian citizen or someone who fulfils the above-mentioned criteria.
How to get NRI status?
In India, the NRI status is for people who are of Indian origin but are inhabiting abroad. Any person who fulfils the below conditions of the NRI definition explained by FEMA gets the NRI status.
● Resides in India for less than 182 days in the preceding financial year, or
● Has left India to reside abroad for a job or other employment motives, or
● Has left India or is living in some other country for business work or vocational activities, or
● Has left India or is residing outside India for any purpose showing their will to stay abroad for a particular period.
For navy officials or traders working on territorial waters, the residential conditions for NRI status purposes depend upon the person's territory. Their tenure relies on the place where they spend more than 182 days.
Why do people become NRIs?
The NRI’s full form vividly explains the meaning of the word and its associated status. A Non-Resident Indian is an Indian who is living abroad for various personal and professional reasons. While NRIs stay away from their country, the Indian government offers multiple benefits to them. The perks offered to NRIs by the authorities make them fly down to India and inhabit the country as an NRI citizen.
There are various tax, educational, and monetary advantages offered to NRIs by the government. Special quotas in top-tier educational institutes are among the most important perks NRIs enjoy in India. Also, they get voting rights and other basic rights available to Indian citizens.
Securing the citizenship status of countries outside India can be tedious as it involves a lot of paperwork and verification processes. However, securing a Non-Resident Indian status in India is simpler than getting citizenship outside. This is a prominent reason for people willing to secure NRI status. An NRI gets to open NRE accounts through which he/she can easily send money in India. If a Non-Resident Indian plans to return to India, they can trade in securities and manage banking operations easily through these NRI-specific accounts.
Who is considered an NRI as per Income Tax Act 1661?
Let’s understand the NRI meaning defined under the Income Tax Act 1961. Section 6 of the Income Tax Act states that any person is said to be an NRI if they are not a resident of India. Further, a person is deemed to be an Indian resident if they fulfil any of the two conditions given here in any previous year:
Condition 1: If they are residing in India for a tenure of 182 or more days during the previous year,
Condition 2: If they stay in India for 60 days or more during the previous year and 365 days or more during the four years immediately preceding the previous year.
The person who does not fulfil the two conditions given here acquires the status of an NRI in that previous year.
The government introduced an amendment in Condition 2 through the Finance Act 2020, applicable for the Assessment Year 2021–2022. As per the changed norms, the tenure of 60 days given in Condition 2 shall be changed to 120 days in special cases. The substitution shall be effective when the total income of an Indian citizen or a person of Indian origin exceeds Rs. 15 lakhs during the previous year.
The total income will not include income from foreign sources. In the new Section 6 (1A) of the IT Act, from the A.Y 2021–2022, a person with a total income above INR 15 lakhs, excluding the earnings from foreign sources, shall be deemed to be an Indian resident only if they are not liable to pay any tax obligation in any other country.
Important taxation rules for NRIs
● Any income earned by Non-Resident Indians in India attracts tax liability in India. The income earned in India includes the earnings that arise or accrue in India or accrue in India as deemed by the law.
● The income earned outside India by NRIs is not eligible for taxation in India.
● The salary of NRI crew members working on foreign ships is excluded from the total taxable income even if the salary amount passes to the NRE account of an Indian bank.
● Those with Resident but Not Ordinary Resident (RNOR) status when returning to India can keep their status for a maximum of 3 years post their return. For these people, the income earned in India is taxable. The income earned outside India will be free from tax liability in India for three years after their return.
● The income earned in and outside India by persons acquiring the status of an Indian resident will be taxable in India.
Benefits for NRIs
1. NRI Quota
Premier educational institutes in India have an NRI Quota that accommodates NRIs and PIOs, OCIs, and Foreign Nationals. There are NRI quota seats for various branches in Engineering, Law, Medical, Management, etc., for NRI individuals willing to study in India.
2. Real estate
The Indian government allows NRIs to purchase or own immovable properties in India in compliance with the guidelines of the FEMA. An NRI is not subject to any legal formalities for real estate trades in India. All they need to do is to fulfil the registration requirements associated with the purchase.
3. The Indian government has seat reservations for NRI candidates in every important polity.
4. NRIs have the full right to vote in national, state, or local elections.
5. Tax benefits to NRIs
India has a Double Tax Avoidance Agreement with some countries. As per the terms of this agreement, if the NRI resides in any of these countries forming a part of the agreement, they do not have to pay double tax on the income fetched through rent from their property located in India.
The interest earned on the Non-Residential External Accounts (NRE) is fully exempt from tax in India. An NRI opens an NRE account in India to pool their foreign earnings.
The deductions allowed to NRIs under Section 80C are:
● Payment of Life Insurance premium
● Tuition fees for kids
● Unit-Linked Insurance Plan
● Amount spent to repay the principal amount of the loan taken for purchasing or constructing the residential property.
● Investment in ELSS up to a limit of INR 1.5 lakh.
● NRIs are also allowed deductions under certain conditions under Section 80D, 80G, 80TTA, Section 54, and Section 54EC.
Disadvantages of being an NRI
1. NRIs pay taxes to the government of the country they reside. These taxes are usually on the higher side compared to Indian taxes.
2. They get fewer government benefits than regular residents.
3. NRIs must comply with stringent procedures to get citizenship in their country.
4. A person with an NRI status is not eligible to receive the following deductions rendered by the Income Tax Act 1961:
● Investment under RGESS under Section 80CCG
● Differently-abled under Section 80U, Section 80DD and Section 80DDB
5. Investments that are unavailable to NRIs are listed below:
● Senior Citizen Savings Scheme
● Five-Year Deposit Scheme of Post Office
Challenges Faced by NRIs
● NRIs outside India must keep themselves informed about the country's laws, regulations, legal rights, and markets, as not doing so may negatively impact their investment and earning potential.
● Double taxation is one of the most significant problems NRIs face in India. The government taxes the income earned by NRIs on NRO accounts, dividends from mutual funds, rental income, capital gains, and other sources. If the NRI's income earned or received in India exceeds the minimum tax exemption limit, they become liable to pay taxes.
● When dealing with financial or non-financial institutions in India, NRIs must undergo strict procedures, which can be time-consuming. Opening NRE or NRO accounts requires several background checks, which delay processing.
NRIs' status comes with significant monetary and non-monetary perks and limitations in India. While they enjoy world-class amenities when residing in developed countries, they need the privilege of getting citizenship there easily.
However, after getting the status of an NRI in India, the government of India offers various exemptions and privileges to them regarding investments, taxation, and legal rights in the country.
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Frequently Asked Questions
NRIs do not enjoy the same rights, laws, and regulations in India.
Non-Resident Indians do not get more benefits than Indian residents.
Yes, Indian students studying in foreign universities are categorised as Non-Resident Indians. They are NRIs as they spend more than 183 days outside India.
The Indian government does not support dual citizenship.
No, NRIs cannot hold a resident account in India.
In India, NRIs pay taxes only on the income earned or accrued in India. The income earned from sources outside India is not taxable in India.
PAN Card is essential for opening an NRO or NRE account.