Moving abroad for employment or planning to shift back to India permanently? How will your income be taxed? Can you continue holding NRE deposit and continue to get tax-free interest? Well, everything begins with finding out whether you qualify as an NRI or a resident.
And this may not always be easy. To add to the confusion, the definition of Non-resident is different under the Income Tax Act and Foreign Exchange Management Act (FEMA).
Why do we need to worry about the definitions as per the Income Tax Act and FEMA?
FEMA decides where you can invest. For instance, you can open NRE or NRO accounts if you qualify as NRI (person resident outside India) as per FEMA. Your resident status as per the Income Tax Act does not matter when it comes to deciding whether you can make a particular investment in India.
Income Tax Act decides how the income from various investments will be taxed. For instance, the provisions of the Income Tax Act will decide how income from NRE and NRO deposits will be taxed.
Another example: Your residential status as per FEMA will decide if you must make your investments in mutual funds as Resident or as an NRI. On the other hand, your residential status as per the Income Tax Act will determine if your MF investments get taxed as Resident or as an NRI.
To make matters complicated, your residential status per FEMA and Income Tax Act can be different. And this leads to a good bit of confusion.
While the Income Tax Act looks at the matter mathematically to decide whether you qualify as a resident or non-resident, FEMA looks at the intent too.
In this post, let’s understand the difference between definitions of a non-resident under FEMA and the Income Tax Act.
Read: How can NRIs invest in Mutual Funds in India?
Definition of Non-resident as per Income Tax Act
As per Section 6 of the Income Tax Act, there are 3 residential statuses.
- Resident and Ordinarily Resident (ROR)
- Resident and Not Ordinarily Resident (RNOR)
- Non-Resident Indian (NRI)
You are a Resident if you satisfy ANY of the following two conditions:
- You are in India for 182 days in the financial year; OR
- You are in India for 365 days in 4 preceding financial years AND 60 days in the financial year
Condition 2 will ensure that most of those who are going abroad for the first time will not be eligible for NRI status.
There are a few exceptions though:
- Condition 2 is not applicable if you are leaving India for employment or as a member of crew of Indian merchant ship. For such cases, 60 days in condition 2 is replaced by 182 days. Hence, condition 2 automatically becomes ineffective.
- For Indian Citizens or persons of Indian Origin (PIO) who stay abroad but are on a visit to India. the period of 60 days in Condition 2 is replaced by 182 days. Finance Bill 2020 has added a caveat to this sub-clause. If the Indian income (income other than income from foreign sources) of such tax payers is greater than Rs 15 lacs, the period of 60 days in Condition 2 shall be substituted by 120 days (and not 182 days). This new condition can complicate matters for many.
As per the Income Tax Act (Section 115, Clause e), a person is of Indian Origin if he or either of his parents or any of his grandparents were born in undivided India.
An NRI is a citizen of India or PIO who is not a resident (ROR or RNOR).
Read: How are Mutual Fund Investments by NRIs taxed in India?
Who is RNOR (Resident and Not Ordinarily Resident)?
This is applicable to Non-residents who are returning to India. If you are not a Resident and Ordinarily resident (ROR), you can still be RNOR.
You are an RNOR if you satisfy ANY of the following conditions:
- You have been an NRI in 9 out of 10 years preceding the financial year under consideration.
From FY2021 (from April 1, 2020), this condition will be relaxed. From FY2021, for you to qualify for RNOE status, you must be NRI in 7 (and not 9) out of 10 previous years. This was introduced in Budget 2020. The condition has been relaxed. As we would see later, RNOR status has a few tax benefits. With this change, you will be able to retain RNOR status for more number of years.OR - You have been in India for no more than 729 days during 7 previous years preceding the financial year under consideration. OR
- If you are an Indian Citizen AND are not a tax-resident in any other country AND your Indian Income (income other than income from foreign source) exceeds Rs 15 lacs. This is a new condition and has been added through the Finance Bill, 2020. You can see this condition has no linkage to the number of days of stay in India. As I understand, this is to bring High Networth individuals who are planning their stays to avoid paying taxes anywhere under the tax bracket. OR
- You are a citizen of India or Person of Indian Origin (PIO) AND your Indian Income exceeds Rs 15 lacs in the previous year AND your period of stay in India in the previous year ranges from 120 days to 181 days.
Conditions (3) and (4) for RNOR status have been added in the Finance Bill, 2020 and will be applicable from FY2021. As per Finance Bill, 2020, “Income from foreign sources” means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).
You can see RNOR status may come into picture when you have been an NRI for many years.
I have discussed RNOR status with illustrations in my post on Returning NRIs.
If you qualify as RNOR, your foreign income won’t be taxed in India (barring a few exceptions). Therefore, the tax treatment on foreign income for RNOR is similar to that of an NRI.
So, if you are planning to return to India, time your return in a way that you can enjoy RNOR status for a few years.
Points to Note (Income Tax Definition)
- For those who are returning permanently to India (and are not on a visit to India), 60 days is not replaced by 182 days (under Condition 2 for Resident status). So, if you have been outside India for 365 days in 4 preceding financial years and return to India permanently before February, you will be considered Resident for the financial year as per Income Tax Act. You may be RNOR if you meet the remaining conditions)
- Preceding financial year means the financial year that precedes the financial year under consideration. So, if you are trying to determine residential status for FY2017, four preceding financial years will be FY2013-FY2016 i.e. April 1, 2012 to March 31, 2016.
Definition of Non-resident as per FEMA
The definition for non-resident is provided under Section 2 of Foreign Exchange Management Act.
FEMA uses the term Resident Outside India (for Non-residents).
FEMA has two classifications for residential status.
- Resident in India
- Resident outside India (NRI)
Non-resident Indian (NRI) means a person resident outside India who is a citizen of India or person of Indian origin (PIO).
When are you a resident as per FEMA?
You are a Resident in India if you have been in India for a period of more than 182 days during the preceding financial year.
There are a few exceptions. The above definition does not apply:
- If you have gone out of India (or stay outside India) for taking up employment
- If you have gone abroad (or stay abroad) for carrying out a business.
- If you have gone abroad (or stay abroad) for any purpose that indicates your intention to stay abroad for an uncertain period.
In such exceptional cases, you can be considered Resident Outside India even if you have been in India for a period of more than 182 days.
When are you a Non-resident as per FEMA?
Continuing with the definition in the previous section, you are a Resident Outside India (NRI) if you are in India for 182 days or less during the preceding financial year.
There are a few exceptions. The above definition does not apply:
- If you come to (or stay in) India for taking up employment.
- If you come to (or stay in) India to carry on a business or vocation
- If you come to (or stay in) India for any purpose that indicates your intention to stay in India for an uncertain period.
In such cases, you will be considered Resident in India even if you have stayed in India for less than 182 days during the preceding financial year.
If you are settled abroad and have come to India for a purpose other than employment or business and have no intention to stay in India permanently, you will continue to be considered Resident Outside India (NRI) irrespective of your duration of stay in India.
Points to Note (FEMA Definition)
- If you go abroad for employment, business or vocation, you are NRI as per FEMA from day 1 of your departure. The period of stay in India does not matter in this case. You may have left on Feb 15. You will still be NRI from Feb 16 as per FEMA.
- Similarly, persons returning to India permanently are considered residents from day 1 of return. By the way, only you know if you have returned permanently. Hence, there can be an element of subjectivity in this case.
- If you are a student leaving India to study abroad, you are NRI from day 1 of your departure from India. RBI clarified this in Circular no. 45 dated December 8, 2003.
- There is no requirement of continuous stay in India. Your stay in India can be staggered over multiple trips/visits.
- Financial year is not defined in FEMA. However, it is assumed to refer April 1-March 31 period.
Differences between definition under FEMA and Income Tax Act
- For you to be resident in India, Income Tax Act requires stay of 182 days in India while FEMA requires a stay of more than 182 days.
- Income Tax Act considers Current Financial year for determination of residential status. FEMA considers preceding financial year.
- Income Tax Act DOES NOT consider the reason of stay in India or visit abroad for determination of residential status. FEMA does. Income Tax Act merely considers number of days of stay in India.
- When it comes to Income Tax Act, you are either resident or non-resident for the entire financial year i.e. you cannot be resident for part of the year and non-resident for rest of the year.
- The aforesaid limitation does not apply to FEMA. For instance, in the above example (leaving India for employment abroad), you are resident till Feb 15 and non-resident after Feb 15.
How does it matter?
Your investments are governed by definition as per FEMA.
For instance, you have to be NRI as per FEMA in order to own NRE/NRO/FCNR(B) accounts.
Whether you can open a PPF or purchase agricultural land depends on your residential status as per FEMA.
On the other hand, taxation of your income is governed by Income Tax Act.
It is quite possible that you are an NRI as per FEMA and a Resident as per Income Tax Act. The opposite is also possible.
Illustration 1
You leave India on November 15, 2015 to visit your brother in the US. You return to India on August 20, 2017.
Income Tax Act
- FY2016: You are Resident since you have stayed in India for more than 182 days during FY2016.
- FY2017: You are NRI as you have been outside India for the entire year.
- FY2018: Resident since your stay in India will be more than 182 days.
FEMA
- FY2016: You are Resident since you were in India for 365 days during FY2015 (preceding financial year)
- FY2017: You are Resident since you were in India for more than 182 days during FY2016 (preceding financial year)
- FY2018: You are Resident since you have returned to India permanently (even though your stay abroad was more than 182 days during FY2017)
Illustration 2
You leave India for employment on November 15, 2015.
Income Tax Act: Since you are in India for more than 182 days, you will be considered Resident in FY2016. Your foreign income will also be taxed in India.
FEMA: Since you are going abroad for employment, you will be considered NRI from day 1 of your departure. You will be Resident until November 14, 2015 and non-resident thereafter.
Illustration 3
You have been abroad for many years. You return permanently to India on Feb 15, 2016.
Income Tax Act: You are NRI for FY2016 since you were abroad for over 300 days in FY2016. Your foreign income won’t be taxed in India. For FY2017, you will still be resident. However, the decision between RNOR and ROR status will be based upon the period of stay abroad.
FEMA: You are NRI till Feb 15, 2016. Since you have returned permanently, you are resident after Feb 15, 2016. For FY2017 too, you will be considered resident.
Source
- RBI and Income Tax Department websites
- In the Wonderland of Investment for NRIs (A N Shanbhag, Sandeep Shanbhag)
Disclaimer: My understanding of Income Tax law and FEMA regulations is limited. You are advised not to make decisions on the basis of this post alone. A decision taken solely on the basis of contents of this post can land you in financial and legal trouble. You are advised to consult an expert or seek professional advice before making a decision.
79 thoughts on “Who is NRI as per FEMA and Income Tax Act? (Latest Rules)”
As usual another story of our contradicting & complicated laws. Though you have tried best to explain with examples but I admit that leaves me more confused than before.
That’s right, Nandan. Quite complicated.
And when you add investor discretion to it, it gets even messy.
Dear Deepesh,
Please give me reply ……as i m too much confused.
I have beeen NRI for last 18 years and running NRE SAVING account and various NRE FD in scheduled bank.
Now my employer, appointed me to stay in India for marketing their products and thus I will have to stay here for more than 182 days.
As I understand so far :-
A) I will not be NRI as per income tax act bcz I will stay more than 182 days
in India.
b) But I will be NRI as per FEMA bcz I am gone overseas for employment and I
keep resident (employment) visa of UAE though working for them in INDIA.
So as per FEMA, I am allowed to keep NRE account.
Now my problem is, i want to know whether interest income on NRE account is taxable or not ?…
As NRE interest is not taxed and no TDS is deducted by bank.
Income tax act says that its exempt under 10(4)ii but the mentioned its exempt to those, who are NRI as per defination under FERA,1973 act.
Presently NRI accounts are not covered under old FERA1973 act but covered by FEMA1999 act.
Can you please guide me, if staying in India for more than 182 days but keeping NRI status under FEMA,whether my NRE FD INTEREST taxable or not (its nearly 10lakh/ per year?…
I am so much confused, please guide me by replying to my e mail account pra0343@yahoo.com
Thanking you
PRAKASH KUMAR
Dear Prakash,
I am neither a tax expert, nor a FEMA expert. Hence, you must verify my opinion with experts in respective areas before taking any action.
A. Income Tax Act is quite crisp. You can decide based on the number of days of stay in India whether you qualify as an NRI.
B. FEMA can get subjective at times. In my opinion, you will be NRI from day 1 of your return. You are coming to India for employment and for an uncertain period. Since you are resident from day 1, you must convert those accounts to Resident Accounts within reasonable time.
As you mentioned in your other comment, only NRI (as per FEMA) can own NRE accounts. So, once you are back in India, you simply can’t own NRE accounts. You have to convert to resident accounts.
Secondly, as your rightly stated, Income Tax Act refers to definition of NRI as per FEMA while granting relief for interest on NRE deposits.
Since you won’t be NRI any longer , you can’t own NRE deposits. Interest income will be taxed at your marginal income tax rate.
Dear sir
I have a doubt with your answer, as I have seen so many examples on NET that defines a different story :-
Please see my situation :-
A) I am employed in Dubai and not in India or getting salary in India. So keeping UAE EMPLOYMENT VISA…I am here on marketing their
products. *(So technically I am not employed in India and not going to declare so, bcz I am getting my salary in overseas account)
B) As I am employed overseas, so FEMA define my status to be ‘NRI’ as I am out of India for employment and staying over 183 days condition doesn’t apply on me (as per FEMA), means I can stay here no matter how many days in a FY.
***
Now I have read some examples :- *(pls check “femaonline” website)
A) If LM MITTAL of M/s Mittal arcelor comes to India and stay here 360 days in a financial year, he still is NRI as per FEMA..so being NRI as per FEMA, he have certain advantage for exempt Income, such as Interest on NRE account.
b) Once a guy in Malaysia having business there and he came to India for ‘cancer treatment’ and he had to live here for over 3 years. later he won case against INCOME TAX dept bcz as per FEMA he was NRI as he was having employment overseas and he is not in INDIA for taking a employment/business.
C) GOVIND G. ASSUMAL Vs DIRECTOR OF ENFORCEMENT INCOME TAX ..This guy had to stay more than 183 days in India for some delay in clearing his VISA status in UK, so though he was RESIDENT as per INCOME TAX but NRI asper FEMA. so he won the case.
So being NRI as per FEMA but not as per INCOME TAX ACT..he deserve the right to get ‘tax free interest’ from his NRE account/FD in India.
My situation is same as per above examples. As I will be resident as per INCOME TAX but NRI as per FEMA.
SO MY ACTUAL QUESTION IS
“WHETHER INCOME TAX DEPT IS BOUND TO FOLLOW ‘NRI AS PER FEMA TAX EXEMPT INTEREST ON NRE ACCOUNT’ CONDITION, AS DESCRIBED ON “RESERVE BANK OF INDIA’S” WEBSITE.
Please check with some few reliable sources and reply after 3-4 days.
Regards
Prakash Kumar
Dear Prakash,
NRI status as per FEMA is subjective.
If you are convinced you will be an NRI, then you don’t have to worry.
In case your case comes up for scrutiny, you will have to convince IT officer that you are NRI as per FEMA. Those officers are not always rational. In case you don’t agree with them, you can always raise to commissioner, tribunal or courts.
As long as you can prove you are NRI as per FEMA, you can own NRE accounts and interest on such accounts will be exempt from income tax. Yes, income tax dept. is bound to follow what is written in Income Tax Act.
In my opinion, you will be a resident (as per FEMA) but then my knowledge of FEMA is quite limited. Suggest you consult a FEMA lawyer and seek clarification.
Dear Prakash,
As I understand, since you services are rendered in India, your income will be taxed in India, irrespective of your residential status and receipt of salary.
Suggest you check this too with FEMA lawyer.
in context of residential status, IT act talks only about ‘R'(ROR,RNOR), and ‘NR”. NRI is not defined in residential status. so instead using ‘NRI” use R or NR and in FEMA also use PRI and PROI instead NRI.
I just checked RBI website……it says that NRI can keep NRE account, if he is NRE as per FEMA and interest in exempt from tax in this account.
Please see this link
https://www.rbi.org.in/scripts/FAQView.aspx?Id=52#FQ1
So is that mean that INCOME TAX DEPT is bound to follow RBI guidelines ?…
Is there any specific language separately mentioned in any INCOME TAX ACT section ?…
Regards
PRAKASH KUMAR
Hi Deepest,
It’s a informative post.
I worked in abroad for past 9 years and returned back to India on 20-Oct’16 and will continue to work from India.
1) Will I be considered as MRI for the FY2016-2017?
2) I have some amount in my NRE account (sent from my salary abroad). Once I convert this account to residence account, will there be any taxation on the balance of my NRE account?
Regards,
Satheesh
Hi Satheesh,
Please understand I am neither an expert in matters of taxation or in FEMA.
Suggest you talk to experts in respective domains.
Status can be different as per IT Act and FEMA.
1. With IT, you will likely be RNOR. With FEMA, if you have returned permanently with no intention of going back, you should be resident from day 1 of return.
2. NRE balance is not taxed. Only the interest is taxed if you are a resident as per FEMA. Even when you convert to resident account, only interest is taxable.
Hi Deepesh, I have been living in US on H1B Visa since 6 years and have resident account in India. I came to know few days back that a NRI can’t maintain a resident account in INDIA.I sent money couple of time to that account for my family maintenance. My question is if i convert my account from resident to NRI then is there any violation of FEMA or Income Tax in India ? because I am converting it very late ? if yes then what are penalties they can impose ? I checked RBI website about Section 13 of the Foreign Exchange Management Act, 1999 but not able to understand properly. Can you assist ?
Dear Deep,
That you are holding resident account despite being NRI is a violation of FEMA. As I understand, income tax department is not concerned as long as you are filing returns in India as NRI (and have been paying taxes in full).
Go ahead and convert the account.
Hi Deepesh,
Thanks for this post. I have one doubt when we say Indian citizen goes outside India for employment, what scenarios it cover.
Suppose a person is employed in India with Indian firm, and this firm send him to outside India for 12 months, does this is consider as employment outside India.
This is my case, I am working with one Indian firm and was deputed to UK (on Certificate of sponsorship) on 13th Feb 16 to work with clients where I am getting UK salary plus Indian compensation benefits.
Now I am returned to India on 7th Jan 2017, now what is my residential status as per IT Act and FEMA act for financial year 2016-17.
Hi Gaurav,
This topic is a bit confusing for me. Therefore, I will refrain from expressing my opinion.
Half-baked advice can land you in trouble.
Suggest you talk to a good Chartered Accountant.
Sir, i am am NRI as i work on merchant ship for more than 7 months in any FY. Can i open sukanya samruddhi account on my single daughter name. If not me, my wife who stays at home in india, can she open SSA account on my daughter’s name
Your wife can be the guardian in your daughter’s PPF account.
Hello Sir,
Being an NRI, can a person be eligible to use his permanent residential address proof in India for registering a residential land in India on his name ?
Not sure. Please contact a property broker.
Hello again,
Can you please let me know, tax treatment of my Income, if my status is as follows :-
IT ACT FEMA
1996~2014 NRI *employed overseas (stayed overseas more than 182 days/year)
2014~2016 RESIDENT *employed overseas(stayed in India more than 182 days) on
vacation
2016~2017 NRI *employed overseas (stayed more than 182 days/year)
2017~2018 RESIDENT *employed overseas(going to stay more than 182 days in India
on vacation.)
So, in this case, you can see that as I am not returning to INDIA permanently, so I can’t be RNOR and my status in IT act changes from NRI/RESIDENT but in FEMA as I keep employed overseas, though for my
personal matters, some year I am staying in India more than 182 days on VACTION, I will be treated as PERSON RESIDENT OUTSIDE INDIA.
My question is, tax implication on my Income, suppose :-
A) My salary, which I get overseas is 12,00,000/per year
B) Interest on fixed deposit, which is 12,00,000/per year
I think, in above case,as I can hold NRI account being person resident outside India so Interest earned on
NRE FD become exempt under 10(4)ii
but what about my SALARY income, which I get in overseas, as being RESIDENT under IT act, my Global Income is taxable but same should be exempt under INDIA/UAE DTAA article 15(a) in which INDIA doesn’t have right to tax on that Income.
If above both conditions are right, do I have to file INCOME TAX RETURN in case my above whole Income is exempt from INCOME TAX or no need to file income tax return.
Please guide.
Regards
Prakash
Hi Prakash,
Good to see your detailed response.
I have limited knowledge about FEMA and Income Tax Act.
I will advise you to talk to a good CA before you take any action.
However, I will still express my opinion.
1. If you are resident as per IT Act, your global income will be taxed.
2. If you are resident as per IT Act but person outside India (as per FEMA), NRE interest will be exempt.
3. If you are resident as per both IT Act and FEMA, NRE interest will be taxed. Infact, you will have to close NRE accounts.
It is always better to file IT returns.
Hello Deepesh sir
Please guide me for tax implications under my residential status :-
F.Year IT act Stay in India Fema
1996~2014 NRI -182days/each year PERSON RESIDENT OUTSIDE INDIA (Employed overseas)
2014~2015 RNOR ? +182days PERSON RESIDENT OUTSIDE INDIA (Employed overseas)
2015~2016 RNOR ? +182days PERSON RESIDENT OUTSIDE INDIA (Employed overseas)
2016~2017 NRI -182days PERSON RESIDENT OUTSIDE INDIA (Employed overseas)
Please note that during 2014~2016, I visited INDIA not for settle down but some personal matter and I was employed overseas, Will in this case too I be treated as RNOR in IT act,, as I stayed here more than 182 days/each year but I was NRI 9/10 years.
*I didn’t not convert my accounts in bank bcz I retained my PERSON RESIDENT OUTSIDE INDIA status under
FEMA (I was/am still holding permanent residence visa)
Please note that in 2014~2015, 2015~2016, I DID NOT FILE RETURNas I thought that even being RNOR my income was not taxable and my income was as follows :-
Salary Income in Foreign Inr 12,00,000 *its not taxable to RNOR
Interest on NRE FD Inr 12,00,000 *its not taxable to RNOR and Person Resident Outside
India under 10(4)ii of Income tax act
Interest on FCNR FD Inr 6,00,000 *Not taxable till maturity
local rent income Inr 1,35,000 *Under exempt limit
Total In r31,35,000
Please let me know :-
A) Was it necessary to file income tax return under RNOR status, if my income was as above. Did I do
mistake of not filing ?
B) Does Interest on NRE FD is too exempt from tax under RNOR status for 2 years.
C) If again in 2017~2018, I visit and stay more than 182 days in India on vacation, will my residential status
become ROR and if so, I know that I must have to file return and my Global Income will be taxable, so
*SALARY OVERSEAS………Will be subject under INDIA/UAE DTAA Article 15(1)
*INTEREST ON NRE FD….Will it remain exempt under 10(4)ii, If I am Person Resident Outside India under
FEMA
*INTEREST ON FCNR……Will it remain exempt under maturity
Please guide me asap. I am so much nervous.
Thanks
Prakash
Hi Prakash,
Please understand I am not the right person to answer these questions. My knowledge is fairly limited.
You must consult a Chartered Accountant.
A. Always better to file
B.Interest on NRE FD is exempt for those who are Person outside India as per FEMA. RNOR status has no role to play.
C. You will likely be ROR. Check the exact conditions. Please go through the following post too.
https://www.personalfinanceplan.in/nri-corner/returning-nri-what-happens-to-your-nro-nre-and-fcnr-accounts/
https://www.personalfinanceplan.in/opinion/nri-corner-you-do-not-have-to-break-your-nre-fd-on-return/
Salary overseas: You can avail benefit under DTAA scheme.
Interest on NRE FD: so long as you are Person outside India as per FEMA
Interest on FCNR: So long as you are NRI and RNOR as per IT Act.
Dear Deepesh
Good day!
Can you call me up at +79766 22093, as I am bet nervous and I want something to
discuss with you on phone call.
as at this public platform, I don’t find it suitable to ask things in details.
Please HELP.
Hi Prakash,
I can understand your anxiety.
However, as mentioned earlier, I have fairly limited knowledge in these matters. Half-baked tax advice can do great harm.
Suggest you talk to a good Chartered Accountant and seek his/her professional advice.
I did try to call on above given number but someone else picked it up.
Prakahs
Hello
Thanks for your quick reply and I consulted with a CA and now want your opinion…….
A) I am convinced that i am “Person Resident outside India” as per FEMA
B) I become ROR in 2016~2017
If so, what will be my tax liability………….suppose
A) My salary in foreign ……………. Taxable subject to DTAA Its clear
B) Interest on NRE fd…………………. Taxable or Exempt under 10(4) ii Give me your opinion
C) Interest on FCNR fd………………. Taxable or not ? I found it taxable but gv me ur opinion
D) local Rent Income…………………. Taxable Its clear
Regards
Prakash
Hi Prakash,
I will express my opinion.
A. Ok
B. Exempt if you are NRI as per FEMA (you mentioned you will be)
C. Taxable for a resident (ROR)
D. Taxable
HI
RE your reply for “C” – Interest on FCNR (B) deposit : Its too tax free if someone is ROI (under FEMA) even if he become ROR (under IT act)
Please recheck and reconfirm.
Thanks
Hi Prakash,
FCNR interest is taxable for residents (as per IT Act).
Dear Mr Raghav,
Thanks for sharing the detailed article.
I have the below situation, can you please advice?
I am an Indian citizen and have travelled abroad to Switzerland on a company assignment and as per income tax act I am still not an NRI.
Now, during my stay here I have transferred some foreign exchange from my Swiss account (salary account here) to my SBI savings bank account in India (which is not yet an NRE/NRO account). I had been doing this for the last 8-10 months as personal expenses and there was no problem. But, recently my last transfer was stopped by SBI and they have send me a declaration to sign – section 10(5) chapter iii of fema 1999. But I am not too sure about the FEMA act. Now, going through the internet and your blog I understand that as per FEMA I am an NRI already. So, can you please advice –
1. What if, now I request my bank to convert my savings account to an NRO/NRE account then do I still violate the FEMA act for my previous transfers?
2. What is the best possible to do in this situation?
Thanks
Reply
Dear Subhankar,
As per FEMA, you are NRI from day 1 if you are going abroad for retirement.
Convert your resident accounts to non-resident accounts and you should be ok.
Dear Mr. Raghav
I am writing this on behalf of a relative..who is a senior citizen, who has worked in the gulf for over 30 years and has returned to India as his contract has ended. He has an NRE account and some NRE FD”s which will mature in about 5 years. As per the FEMA and Income-tax definitions of NRI he has stayed abroad (outside India) for over 182 days, will he be considered a RNOR or a NRI and for how many years ?( considering the fact that for this FY 2017-2018 also he has been abroad for over 182 days..) and if he continues to spend 182 days outside India not necessarily for employment but for some vocation or any other reason, will he be considered as a non resident indian?
Will the interest on the fixed deposits be taxable at the end of its term of 10 years in 2022? If so, what is the best option for him to avoid the tax as he would be losing quite a bit of his hard earned savings? Secondly can he hold on to the NRE account till he lives outside India for more than 182 days as the proceeds of the fixed deposits would be credited to the same at the end of the term..? Kindly advise.
Sir,
What about the status of person(Eg Spouse) who is joining her husband(on employment abroad)?
FEMA is quite tricky. Not very sure on this.
As I understand, since spouse is not going for employment (only accompanying the other person), the spouse may not become NRI (person outside India) immediately.
Other rules for determination of residential status as per FEMA will apply for the spouse.
Hi Deepesh,
While I will consult tax consultant but there are few who are expert in giving tax advise so need your input.
I lived overseas at stretch for 7 years 11 months and came back to India on July 2016 and takenup a job in india.
I still hold NRE account as I have plan to go back and work overseas again.
When I’m going to file return for 2017-2018 I’ll hold RNOR status ( as per your article where in I have been in India for no more than 729 days during 7 previous years preceding the financial year under consideration) .
July 2016 to March 2018 ( total 605 days).
Question-1 – Is my understanding correct on above.
Question-2 What if bank closes my NRE account and convert it into resident account ? Then TDS will start deducting automatically. How can I enjoy TDS free deposit claiming as RNOR status. There is no as such RNOR account in bank.
I will be grateful if you guide or give me number of tax consultant who is expert in dealing this. I have approached various but did not find suitable reply.
have not been in India for no more than 729 days during 7 previous years preceding the financial year under consideration
Hi Avanish,
1. Yes (minor deviation from what I understand but still RNOR)
suggest also go through this post:
https://www.personalfinanceplan.in/nri-corner/returning-nri-what-happens-to-your-nro-nre-and-fcnr-accounts/)
2. NRE accounts have to converted to resident as per FEMA. Nothing to do with RNOR status (which is as per Income Tax Act). Resident deposits are liable to TDS.
Please drop me an e-mail at support id (given at the top right). I know someone who might be helpful (no guarantee though).
Hi
I left India on 04 July 2009 for employment and returned back on 26 March 2017. Every year visited India for 30 to 40 days during a vacations.
I have NRE fds. I am of understanding that interest on NRE fds is taxable for FY 2017-18?
Any opportunity to save tax via RNOR Status?
Dear Sir,
As I see, the interest income on NRE FDs will be taxable.
RNOR status wil not help.
Suggest you talk to a CA too.
I am an NRI for last 17 years and returning back to India in April-2018. I have appeared for interview for a middle east country and most probably get it but in case I do not get the job I have to be a Resident of India. My questions are – (a) How long I can wait before declare to the bank that I have returned? (b) Can I transfer my money from outside to India in that time period? (c) Can I convert Resident account back to NRE if I get the job?
Appreciate your advice.
Hi deepesh,
Please help me. I am so confused.
I am us citizen, holding OCI card, retired in U.S. After retirement me & my husband have come to India to spend time with our family. We are settled in US. My daughter lives in zurich, .,switchzerland Every year we go to US, switchzerland.. We have come to India in 2003. We do not have any income in India except interest on NRO, NRE account.. I have both NRO and NRE account. I need to file Tax return in US. I send my Nre interest income to US tax return. one of these days I will go back to US when my daughter will come back to US. My question is to you what is my status.
i) according to FEMA act and
ii) IT Act.
Most of the time in a year I stay in india which covers 182 days/year also 729 days in last seven years.
Can I keep my NRE, NRO account. or I need to convert to resident account?
.
Hi Champa,
It is difficult to comment with this limited information.
Looks like you will be resident as per IT Act and a resident as per FEMA.
I am not a FEMA or tax expert. Therefore, I suggest you work with a good Chartered Accountant.
If you are a resident as per FEMA, the account needs to be converted to resident.
Hi Deepesh,
I am a retired defence officer resident Indian citizen. My permanent house that I own and reside is in Delhi. But I travel overseas a lot purely for tourism purposes with normal tourist visas.. My only source of income is my defence pension. And I file my IT returns regularly as a resident individual. I have no overseas income or investments, etc.
If my total number of days spent outside India in a FY purely for tourism exceeds 185 days, am I considered NRI by FEMA? If yes then what should I do next.
Also for IT department rules if I’m spending less than 60 days in India in a FY and also have spent less than 365 days in previous 4 years, am I considered NRI by IT? No bank will open a NRO account anyway without a proof of overseas residence, which I don’t have as I visit only for short term tourism purposes, staying with friends etc in any country that I travel to. Moreover my total stay overseas are not in one single country, it is always spread a across several countries.
Please advise. I did talk to a CA and he said since I travel purely for tourism and have no foreign income at all there’s no need to bother how many days I travel overseas.
Thank you. Kind regards
Dear Sir,
FEMA is a bit subjective. It considers preceding year (and not previous year) and also considers the reason for coming back to India or leaving India.
I agree with your CA on this. There is no need to open Non-resident accounts. You can continue with resident accounts.
Please understand whether you need to open NRO/NRE accounts depends on residential status pas per FEMA.
On the other hand, Income Tax Act is quite crisp.
If you are an NRI as per IT Act, you need to file returns as NRI.
However, since you do not have any foreign income, there is unlikely to be an impact.
Hope this answers your query.
Please understand I am not an expert in matters of FEMA or Income Tax Act.
Deepesh
Great note. Question
I am a US citizen, on expat assignment since 2012. I have stayed for more than 182 days every year since then in India
I am now 800 days + in India though not continuous
I continue to be paid in US salary, in $s and taxes in US and India.
As I am US citizen , I am technically not returning permanently. I also hold OCI.
What would FEMA and IT consider me for ROR, RNOR, NRE etc.
Hi Ravi,
If you are in India for full-time employment, you are resident as per FEMA.
Your status as per Income Tax Act (ROR, RNOR or NRI) will depend on the number of days of stay in India during the previous year.
For any income earned for services rendered in India or received in India, you have to pay tax in India anyways (irrespective of your residential status)
Suggest you consult a competent chartered account before taking any action.
Please understand I am not a tax expert. There may be many finer points that may completely elude me.
Dear Sir,
Would like to seek your advise for the following.
We were NRI in Kuwait and stayed there about 30 years from 1983-2015. Came back to India on 01.08.2015 but were holding visa for Kuwait for 2015-16,2016-17 and 2017-18 and visiting there to keep the visa and our intentions were to go once again but due family circumstances could not go and visa expired in March last month.
Since we are in India for more than 729 days during above three years, we can not be granted RNOR status but we continue to be NRI for 9 out of 10 years preceding, please advise if we can get RNOR status and this status of RNOR will be considered from which year. Will it be from 01.08.2015 or now onwards when we inform to bank that we are not going back and change status of bank accounts. We did not change the status of accounts earlier as we were suppose to go back to settle once again. I have filed my ITR for 3 years as NRI and can i file my ITR for 2017-18 as RNOR or Resident India. If RNOR status to be considered from 01.08,.2015 and three years period granted is already over by March, 2018 and i need to file ITR as Resident Indian and in that case interest of NRE FDRs is taxable.
Please confirm if my presumption is correct.
Dear Avinash,
It is better to consult a Chartered Accountant. He will be able to advise with better knowledge of specifics.
Looks like you can be RNOR for FY2018. There is no 3 year period for RNOR status.
For interest on NRE FD, it is exempt only if you are NRI as per FEMA. Nothing to do with RNOR status.
Dear Deepesh,
I am OCI card holder (Mozambique Nationality). I’m born and brought up in Mozambique (East Africa). I have business in Mozambique.
In 2017, my family (my wife and two daughters) came to live in India for education purpose of my daughters. Hince. I visit twice a year to see my family. In 2017 I stayed two-quarters of 90 days (April-June) & (Sept-Nov). And in 2018 is the same. In 2016 I have come for marriage and training and stayed 40 days only. Seeing this way (2016-40 days) – (2017-180 days) (2018-180 days). According to the IT act, I have 400 days in India in the last 3 years and considered as a Resident. But as per FEMA, I am still a foreigner (non-resident). Due to having business outside India. My reason to visit India is solely to meet my family for a certain period and then I return to Mozambique. I do not have any income in India except my NRE FD’s and some investment in Mutual Funds with a long-term horizon (In MF I am aware that I have LTCG). My concern is what is my current status and how should I proceed further? Are my NRE FD’s tax-free or taxed?
I meant can I continue with my NRE-FD’s with tax free if I am Non-resident as per FEMA?
Dear Rajiv,
Given the information shared, it appears you will be NRI as per FEMA and can continue NRE FDs. The interest on such FDs will be exempt from tax.
hi Deepesh,
Great article I must say. Have couple of doubts though. Will be grateful if you can provide your advice for below case. what do you think would be status as per IT
Case 1>
Someone traveling out of India to HK and employed in HK from Jan 2018 and returning back to India in mid Oct 2018 looking forward to take up employment in India around Oct end or anytime before mar 2019
* FY 18-19 ie from Apr 2018 to Mar 2019 –> which of the two clause would kick in
a> Since left India for employment overseas and employed in HK (may not be employed for 182 days but stayed in HK for more than 200 days) so status would be NRI
or
b> Since returning permanently to India and looking forward to be employed in India from Oct end or anytime before Mar 19, which means 60 days is not replaced by 182 days (under condition 2) so status would RI
Case 2>
Someone traveling out of India to HK and employed in HK from Jan 2018 and returning back to India in Oct 2018 looking forward to take up employment in India only after Apr 2019
* FY 18-19 ie from Apr 2018 to Mar 2019 –> which of the two clause would kick in
a> Since left India for employment overseas and employed in HK (may not be employed for 182 days but stayed in HK for more than 200 days) so status would be NRI
or
b> Since returning permanently to India in Oct 18 but looking forward to be employed in India in next FY ie Apr 2019 onwards which means 60 days is not replaced by 182 days (under condition 2) so status would RI
Tricky.
As I understand, the intent to work in India or its timing will not cause any difference.
In both the cases, if you return to India permanently (and not on a visit), the period of 60 days (in condition 2) is not replaced by 182 days. Therefore, you will qualify as resident for FY2019.
Request you to verify this with your CA too.
Thanks Deepesh for your prompt response !!
While I am checking with my CA on this as well, would like to bring one point to your notice.
Feel timing of intent to work in India may have an important role to play from Income Tax perspective, If someone starts working from Apr 2019, although he/she may have landed in mid Oct, he/she may go back to HK or for that matter nepal/srilanka for a vacation for 1 week around end of mar 2019 just to showing that mid oct – 3rd week of march stay in India was mere a visit. and only from Apr 2019, intention is to return to India permanently and work.
The expense of vacation to a neighboring foreign country would be 1/10th of the tax one has to pay if intent is shown as above…isn’t it ?
I am not a tax expert in these matters. Therefore, a second opinion is warranted.
I still believe IT Act is not so much bothered about your intent.
In my opinion, these are subjective parts. If your case comes up for scrutiny, you will have to convince the assessing officer that you have returned permanently.
IT dept. shouldn’t be worried if an individual wants to spend money to maintain NRI status.:)
Moreover, timing is not always that easy.
My self-Vipul,
During the financial year of 01-04-2018 to 31-03-2019, I was outside India more than 182 days for the business purpose
I am eligible as a NRI/NRO.
My self, Vipul,
I want to know, am I eligible as a NRI/NRO.
1) During the financial year 2018-19 (01-04-2018 to 31-03-2019), I was outside India more than 182 days for the business purpose.
2) Previous 4 preceding financial years (from 01-04-2014 to 31-03-2018), I was stay in India 8 month and 4 months in abroad for the business purpose.
3) Previous 4 preceding financial years (from 01-04-2014 to 31-03-2018), I was stay in India more than 60days.
Name: Vipul
Email: vipulgurjari@gmail.com
You are a Resident if you satisfy ANY of the following two conditions:
You are in India for 182 days in the financial year; OR
You are in India for 365 days in 4 preceding financial years AND 60 days in the financial year
As I see you will meet the second condition. So. should qualify as resident.
However, “60 days” in the second condition is replaced with 182 days if you are going for employement. Business can also be loosely interpreted as employment. Therefore, in my opinion, there is an element of subjectivity.
Please consult a good CA.
Dear Sir,
I am an NRI and a postdoctorate in technology Ph.D., working and living in Saudi Arabia for 18+ years. I work for a petroleum-based organization.
I have been out of India since 1994, pursued post-graduate studies from the USA in petroleum sciences. I was in there until 2001 and relocated to Qatar and then to Saudi Arabia. About my current job profile, Apart from my regular job, I conduct various consultancy training, audits across the world during my vacation period ( no issue with my present employer). I have earned substantial income over the years and parked my funds in Indian banks under NRE accounts. I have no rental income from India as I do not have any properties there, hence no taxable income arising from India.
As I understand, revenue generated interest in these banks are 100% tax-free and FEMA compliant. The earnings from personal audits are also parked along with my earnings from current job in these banks.
I have a few questions:
Since I have a very good client network across the world, I have been earning forex (US$ & Euros) thru my personal visits to client locations by issuing personal invoices. I have been issuing invoices in my name only. My question is am I liable to pay taxes in India on the income earned by foreign clients? All monies (salaries and consultancy fees) are being transferred directly by my clients into my existing NRE accounts in India.
Please advise if I can continue to receive monies (forex only) from my international client network. I cannot transfer the forex earnings into Saudi bank and then remit to India as per the prevailing restrictions of local banks in SAUDI.
I am taking up consultancy engagement with companies based in Norway, U.K, Japan, China, and the USA, they will be depositing the consulting fee in forex directly into my NRE bank account directly. Since I am an NRI, will I have to pay taxes on this foreign income?
Please advice……
Best regards,
Pramod Kumar, Aithal
Saudi Arabia
Hi Pramod,
for NRIs, global income is not taxed. Only Indian income is taxed.
Indian income is income generated or received in India.
With an element of subjectivity, even income received directly in an India account for services rendered abroad can be construed as Indian income.
In the future, avoid that. Better to first receive the funds in an account abroad and then transfer to your NRE account.
I am a housewife (Indian citizen ) living outside India since 2017. In FY2018-19, I visited India to meet my parents for 70 days. Also, over last 4 years, I have spent 400 days in India. Do I become Tax resident?
Yes, if you living abroad permanently.
I left India to be with my daughter since July, 2016, who is a student in Canada. In the last FY I have been in India for about 90 days, while in the last 4 years I have been in India for more than 365 days, do I file my ITR as NRI or Ri?
Before answering your query, you need to let us know your status in Canada and if you have a long terms visa and not a tourist visa and then your stay for the financial year if less than 182 days in India you will be treated as non-resident but if you are on a tourist visa where you have no permanent right of stay in Canada and since you stayed for more than 60 days in the FY in India you will be treated as a resident for Income tax purpose.
Please note that if you reside in Canada for more than 182 days you will be treated as a resident and your world wide income will be taxed.
World wide income will be taxed in Canada
Hi,
I moved out of India 2018 on employment to US.
My wife got her greencard and also moved to US.
18-19 stay in India 120 days.
Previous years resident in India.
I become NRI because of employment.
What about my wife who is with me but more than 60 days and previous 4 years more than 1000 days in India?
Thanks
Hi Srini,
It appears your spouse will be tax-resident in India.
Please check this with a Chartered Accountant too.
Sir,
Please confirm the line “365 days outside india in 4 years” under Points to note(income tax definition) .. is it correct as u daid 365days in india instead of outside india.. which one is correct??
Very informative blog.
There have been sweeping changes to the Indian tax laws with respect to the residential status of an individual which may result in expanding his tax base in India and he may qualify to be a ‘stateless’ person.
Recent changes to Residential Status definition under the Income Tax Act. If you are an NRI – this article, first in the series, is a must-read.
Hello Sir,
Hope you and you family are safe & healthy.
My condition is:
I left India for employment purpose on 14th June , 2019 to Africa & I am having 2 year contract, means I will not be returning back to India before 14th June, 2021. After 14th June, 2021 I will be on 2 month paid leave (So, In this period I will be staying in India, from 14th June, 2021 to let say 31st August,2021) & after again I will left India with 2 year contract.
So, my question is that would you please explain my residential status for the year of 2019-20, 2020-21 & 2021-22?
As my full salary comes in my Indian saving account, it will be till my contract overs & in my paid leave I am planing to open NRI account for next contract that will start after 31st August,2021.
So, my second question is what difference it will create to have NRI account afterwords?
I will be waiting for your early response.
I have a relative who is a British Citizen with a British Passport and OCI with a lifelong India VISA . He is in India since January February 2018 due to health reasons and does not know when will he return back to his home country.
Will he be considered as a Resident in India from
(1) Income Tax perspective
(2) FEMA perspective
Hi Nilesh,
He is resident as per both Income Tax for sure.
In my opinion, he is a resident as per FEMA as well.
Very useful information …Thanks for the sharing
HI Sir,
I am out of India for employment services in UAE since 1996, and visiting India maximum 30 days in a year for vacation. Due to the current scenario company has asked for a long leave since Nov 22nd . My employment visa is still valid .
Would like to know how I will be treated in India as far as FEMA and INCOME TAX is considered, I do have various NRI deposit in india which is not matured at present and getting by 2021 and 2022 and also have balance in NRE account as well . How these will be treated .
rgds
Hari Krishnan
Hi Hari,
I am not sure if I got query right.
How many days have you been in India this year?
Income tax act simply looks at the number of days spent in India.
FEMA considers the intent too.
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Your article provides a very crisp explanation of NRI. The difference between the definition of NRI as per the different guidelines have been well explained.
In banking parlance, I suppose we follow FEMA guidelines. Can you please mention the Circular details of FEMA/RBI which defines NRI?