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An NRI is a citizen of India living abroad for work, business, or other extended purposes. There are specific guidelines on how a resident Indian can get an NRI status.
NRI's full form is Non-Resident Indians. It refers to Indian citizens who reside outside India for various reasons, such as employment, education, business, or personal preferences. They are also known as Overseas Indians and enjoy many benefits and rights as Indian citizens.
Have you ever dreamed of living abroad and exploring new cultures, opportunities, and lifestyles? Do you want to know what it takes to become an NRI? If yes, then this article is for you.
Read on to find out more about how you can become an NRI, what are its benefits and more.
How to Become an NRI?
If you are considering a change in your residential status, you must know the provisions for it. You need to meet certain NRI criteria to change your residential status. An NRI is a person who is an Indian citizen but resides outside India for a certain period. The Income Tax Act 1961 explains an NRI as a person who satisfies any of the following conditions:
- He/she is in India for less than 182 days in a financial year (from April 1 to March 31).
- He/she had spent fewer than 60 days in India during one financial year and fewer than 365 days in the preceding four financial years.
However, there are some exceptions to these conditions. For example, if you are an Indian citizen who leaves India for employment or as a crew member of an Indian ship, you will be considered an NRI if you stay in India for less than 182 days in a financial year.
Similarly, if you are a person of Indian origin (PIO) who visits India, you will be considered an NRI if you stay in India for less than 182 days in a financial year.
A PIO is a person whose parents or grandparents were born in undivided India. A PIO can also be an Overseas Citizen of India (OCI) cardholder, which is a special status given to eligible PIOs by the Indian government.
Amendment Under the Finance Act
The Finance Act 2020 has introduced some changes to the definition of an NRI from the assessment year 2021-22 onwards. Under the new regulations, if you are an Indian citizen or a PIO with a total income (excluding income from foreign sources) exceeding ₹15 lakh in a financial year, you will be classified as an NRI if you meet any of the following criteria:
- You spend fewer than 120 days in India during one financial year and fewer than 365 days in the preceding four financial years.
- You are not liable to pay tax* in any other country because of your domicile or residence.
These new rules aim to prevent tax evasion by high-income earners who may try to avoid paying taxes in India by staying abroad for a short duration.
NRI Status Definition by FEMA
Apart from the Income Tax Act, another law defines your NRI status in India: the Foreign Exchange Management Act (FEMA), 1999. This law governs your transactions and investments in foreign currency and assets. According to FEMA, you are a person resident outside India (PROI) if you satisfy any of the following conditions:
- You have left India or are residing abroad for reasons such as employment, business, profession, or any situation that suggests your intention to remain outside India indefinitely.
- You are a student who has left India or stays outside India for studies.
- You are a person of Indian origin who has acquired foreign citizenship.
The main difference between the Income Tax Act and FEMA is that the former is based on the number of days you stay in India, while the latter is based on your intention and purpose of staying outside India.
Benefits of Becoming an NRI
Being a Non-Resident Indian (NRI) comes with various advantages that can assist you in accomplishing your financial objectives and dreams. A few of these advantages include:
- You can earn better interest rates on your deposits and investments in India compared to your country of residence. For example, NRIs can open NRE or FCNR accounts that offer attractive interest rates on foreign currency deposits without any currency risk.
- You can easily transfer money to and from India through various modes of remittance, such as wire transfers, online banking, cheques, and demand drafts. You can also repatriate your funds from India without any restrictions, subject to certain conditions and documentation.
- NRIs can access various investment opportunities in India, such as equities2, mutual funds, bonds, and real estate.
Double Tax Avoidance System for NRIs
One of the significant challenges that NRIs face is the possibility of double taxation on their income. Double taxation means paying taxes on the same income in India and the country where you reside. India has agreements with several countries called Double Taxation Avoidance Agreements (DTAAs) to avoid this situation.
These agreements specify how the income earned by NRIs from different sources will be taxed in both countries. Depending on the terms of the agreement, NRIs can claim tax relief or exemption in either country.
For example, if you are an NRI residing in the USA and earning interest income from an NRE account in India, then according to the DTAA between India and the USA, you will have to pay tax on this income only in India at a concessional rate of 15%. You can claim this benefit by submitting a Tax Residency Certificate (TRC) issued by the USA tax authorities to your bank in India.
Similarly, if you are an NRI residing in UAE and earning salary income from UAE, then according to the DTAA between India and UAE, you will not have to pay any tax on this income in either country, as UAE does not levy any income tax. India exempts such income under Section 10(4) of the Income Tax Act.
Conclusion
Through the Karnataka Bhagyashree Scheme and other state and central government-sponsored welfare and saving schemes, India can work towards a more inclusive and equitable society, where every child, regardless of their economic background, has the opportunity to thrive and contribute to the nation's progress.
