Article explains Who is Non Resident Indian (NRI) as per Income Tax Act and as FEMA Provisions, Main categories of NRIs, Provisions regarding Resident and Non-Resident under Income Tax Act and Foreign Exchange Regulation Ac, NRI income and Applicability of TDS on Interest on bank deposits, TDS on Interest on all other investments, Dividends, TDS on Capital gains on securities and TDS on Capital gains on other assets like house property, gold.
Page Contents
A. Who is Non Resident Indian (NRI) as per Income Tax Act and FEMA Provisions?
An Indian Citizen who stays abroad for employment/carrying on business or vocation outside India or stays abroad under circumstances indicating an intention for an uncertain duration of stay abroad is a non-resident. (Persons posted in U.N. Organisations and Officials deputed abroad by Central/State Governments and Public Sector undertakings on temporary assignments are also treated as non-residents). Non –Resident foreign citizens of Indian Origin are treated on par with non-resident Indian Citizens (NRIs) for the purpose of certain facilities.
B. Main categories of NRIs
The following are the main three categories of NRIs:-
(i) Indian citizens who stay abroad for employment or for carrying on a business or Vocation or any other purpose in circumstances indicating an indefinite period of stay abroad.
(ii) Indian citizens working abroad on assignment with foreign government agencies like United Nations Organisation (UNO), including its affiliates, International Monetary Fund (IMF), World Bank etc.
(iii) Officials of Central and State Government and Public Sector undertaking deputed abroad on temporary assignments or posted to their offices, including Indian diplomat missions, abroad.
C. Provisions regarding Resident and Non-Resident under Income Tax Act and Foreign Exchange Regulation Act
The residential status of a person is decided under two different Acts, one under Income Tax Act, 1961, ( I.T. Act) and another under Foreign Exchange Regulation Act, 1973 (FERA). The concept of Non-Resident under FERA is different as compared to that under Income Tax Act. Under Income Tax Act, the residential status of a person is determined on the basis of number of days he stays in India whereas under FERA, it is the intention of a person to be in India or outside India would be an important factor determining his residential status.
i. Provisions regarding Resident and Non-Resident under Income Tax Act
The residential status for the Income Tax Act is determined in section 6 as under:
1. An individual will be treated as a resident in India in any previous year if he fulfills any of the following two conditions:
(a) he/she is in India in that year for period or periods amounting in all to 182 days or more, or
(b) Having within the four years preceding that year been in India for a period or periods amounting in all to 365 days or more, and has been in India for 60 days or more in that year.
2. Under Explanation to section 6 (1) of the Income-tax Act, the residential status of an individual who is rendering service outside India and who visits India during leave or vacations in any previous year or an individual who is outside India and who comes on a visit to India in any previous year will be determined as under :
(a) An Indian citizen who leaves India in any previous year for the purpose of employment outside India or as a crew member of an Indian ship would be treated as a resident in India if he stays in India in that year for 182 days or more [instead of 60 days as stated in 1 (b) above ]. Conversely, if he stays in India for less than 182 days, he will be treated as non-resident for that year and his foreign income would not attract tax liability.
Further, w.e.f. 1st April, 1999, a crew member will be treated as non-resident in India if he is on board such ship outside the territorial water of India for 182 days or more during any year.
(b) An Indian citizen or a person of Indian origin who resides outside India and who comes on a visit to India in any previous year will be treated as resident in India if he stays in India in that year for 182 days or more [instead of 60 days as stated in 1 (b) above.]
Conversely, he will be treated as non-resident if he stays in India in that year for less than 182 days.
(3) An individual (whether Indian citizens or not) who is outside India and who comes on a visit to India in any previous year will be treated as “non-resident” in India if he stays in India in that previous year less than 182 days subject to the condition that during the preceding four previous years his stay in India does not amount to 365 days or more.
An Individual who fulfills any of the conditions mentioned in section 6(1) is treated as resident in India. But in order to become an “ordinarily resident”, he must satisfy the following two conditions as laid down under section 6(6) (a) of the Income-tax Act, 1961:
(i) He should have been resident in India in nine out of the ten previous years preceding the previous year in which he is resident within the meaning of section 6(1); and
(ii) He should have been in India for a period or periods amounting in all to 730 days or more during the seven years preceding that previous year.
If he does not fulfill any of the above conditions, he will be treated as “not ordinarily resident”.
(4) An individual who does not satisfy both the conditions as mentioned above as laid down in section 6 (1) will be treated as “non-resident” in that previous year.
(5) A Hindu undivided family, firm or other association of persons is said to be resident in India in any previous year in every case except where during that year the control and management of its affairs is situated wholly outside India
(6) A company is said to be a resident in India in any previous year, if—
(i) it is an Indian company; or
(ii) its place of effective management, in that year, is in India.
ii. Provisions regarding Resident and Non-Resident under Foreign Exchange Management Act (FEMA)
A Non Resident Indian (NRI) as per India’s Foreign Exchange Management Act (FEMA), is an Indian citizen or Foreign National of Indian Origin resident outside India for purposes of employment, carrying on business or vocation in circumstances as would indicate an intention to stay outside India for an indefinite period.An individual will also be considered NRI if his stay in India is less than 182 days during the preceding financial year.
D. NRI income and Applicability of TDS on the same
TDS will be deducted only on those incomes of Non Resident Indians (NRIs) which are liable to tax in India. If the income is tax free in India there would be no TDS. Another important thing to remember is that you should be an NRI at the time of receiving the income. For instance, you may have purchased a long term debenture of a company while you were a resident Indian. But any interest that you receive during the period after becoming an NRI will be subject to TDS.
i. TDS on Interest on bank deposits
Interest earned on Non Resident External (NRE) accounts and Foreign Currency Non Resident (FCNR) accounts are tax free in India. Hence, there would be no TDS.
However, interest earned on the Non Resident Ordinary Account (NRO) is taxable and will be subject to a TDS of 30 per cent. There is no basic exemption limit. For example, interest earned by resident Indians from bank deposits is subject to TDS only over and above a limit of Rs 10000. No such limit applies for NRIs.
ii. TDS on Interest on all other investments
Interest earned on all other investments like corporate deposits and bonds will be subject to TDS at 20 per cent. In all these cases, the company or party making the payment will deduct this tax.
iii. TDS on Dividends
Dividends from equity shares, equity mutual funds and debt mutual funds are exempt in the hands of the share or unit holder.
iv. TDS Capital gains on securities
– Equity shares and equity mutual funds (mutual funds with more than 50 per cent in equities)
Long term capital gains, that is profits made on sale after 1 year from date of purchase, on equity shares and equity mutual funds are exempt from tax. There will be no TDS applicable.
Short term capital gains, that is, profits on sale within one year of date of purchase, will be subject to a TDS of 15 per cent.
– Debt mutual funds, corporate debentures
Long term capital gains from debt mutual funds and corporate debentures (when sold in the secondary market) will be subject to TDS at 10 per cent.
Short term capital gains will be subject to a TDS of 30 per cent.
V. TDS Capital gains on other assets like house property, gold
Long term capital gains will be subject to a TDS of 20 per cent.
Short term capital gains will be subject to a TDS of 30 per cent.
Now in case of sale of assets like gold and house property, the question arises as to who will deduct the tax at source. If the property is sold to an individual, does the individual need to deduct tax at source and deposit the same with the Government? Will the individual then issue a TDS certificate to the NRI?
Republished with Amendments
Dear sir.
I have been NRI for 18 years as I was working in Kuwait. I have made 10 years deposit in government bank in the year 2014 and 15, when I was NRI. Now I left the job since April 2015. Since then I am living in India. Do I have to pay tax on the interest earned on NRE deposits.
Dear sir,
IAM WORKING ON BOARD FOREIGN FLAG VESSEL AND OUT OF COUNTRY FOR MORE THAN 8 MONTHS.KINDLY MAIL ME IF I HAVE TO FILE INCOME TAX RETUNS.I HAVE 16A,16B,12A FORM.
THANKING YOU.
BEST REGARDS
–
Dear Tax guru –
I am working with a Foreign Diplomatic Mission (Embassy) and I receive my salary after working of 80 Hrs (two weeks) and my employer did not deduct any TDS against my salary. Is I am entitled to pay Income Tax in India? Please explain as I am bit confused.
Thanks.
QS : My question is that for seafarer who is on foreign flag vessel if has done following days abroad inclusive of visa stamps how many more days he needs to do to complete nre status .
DATE OF LEAVING : 21st March 2014
Date of arrival : 18th August 2014
Date of departure :20th nov 2014
Date of Arrival 04th Dec 2014.
Also please advise whether you have to abroad for employment reasons or if some body went for 5-10 days vacation abroad,that also counted as nri time.
thanks
Hi,
I had NRI status from 3/01/13 to 30/06/2014 and currently back to India.
My FDs in NRI account are of 1 year duration where some of them are matured and renewed recently for next one year and others are about to mature.
Please let me know how is income tax going to be calculated for 2014-15 on these FDs.
Dear Sir,
1. There is a Major Grey Area regarding income tax liability fro seafarers serving on Indian Flag vessels.
2. A seafarer who completes his NRI status (More than 182 days abroad/in foreign waters) on an Indian Flag vessel (registered in Mumbai, Visakapatnam, Kochi, or any other Indian port) which has been out of the Indian Territorial Waters (more than 12 Nautical Miles) is still taxed TDS by the company as the owners of the vessel are based in India & require to deduct tax at sorce.
3. The seafarer, although completed his/her NRI status, does not benefit from Section 6(1), as the Income Tax Department automatically takes the stand that if the TDS (u/s 194 J)has been paid by the employer (Indian Company) the employee (Indian Seafarer on Indian Ship in International waters for more than 182 days) still needs to pay the balance 23% (approx).
4. Further, referral to Circular No. 586 dated 28.11.1990 (www.incometaxindia.gov.in) also does not clarify that the 10% TDS can be reclaimed by the seafarer, having completed his NRI status, or that even though the company has paid the govt. 10% TDS, he need not pay the balance approx 23% taxes.
5. This dichotomy renders the definition of NRI Indian Seafarer on Indian Flag vessel totally useless and hence, irrespective of how many days he may have spent abroad, away from family, battling heavy weather & rough seas, transporting goods globally to keep the world-economy moving, he still has to return home & pay more taxes.
6. It is not surprising then, that after so many years believing that we were serving the Indian Maritime Economy, people like me have become disillusioned and now decide to sail only in Foreign Companies, if we can help it.
7. Jai Hind.
what will be tax exemption on let out property
Please let me know what is the status for financial year 2013-14 , how many days person can stay outside India to be NRI? I am working abroad. Has the DTC started? Have they reduced number of days to 60? Please do reply.
Sir, I am working in Public sector company and on deputation to JVC in African country. Now my status is as NRI because of staying over there for more then 200 days. But payment arrangement being made that total “X” amount will be paid for deputation and some amount will be paid in India “Y”, so total “X-Y” amount paid in foreign currency and rest being paid in India in Rs component. On Rs component TDS being deducted. But one important thing that I have not rendered any services to public sector company in India. This was only payment arrangement to pay some compulsory deduction like PF/Superannuation etc. Please let me know that, should I claim the refund for the Tax deducted at source or not.
Kindly note I also working on foreign flag ship. My question is that are the days leaving india as per the immigration stamp or the day combing back to india counteed as resident days or foreign days.
Dear sir,
IAM WORKING ON BOARD FOREIGN FLAG VESSEL AND OUT OF COUNTRY FOR MORE THAN 8 MONTHS.KINDLY MAIL ME IF I HAVE TO FILE INCOME TAX RETUNS.
THANKING YOU.
BEST REGARDS
Dear Sir,
I am a Seaman, employed by an overseas Shipping Company. I serve on Foreign flagged ships & each year I normally spend about 8 – 8.5 mths outside India. Under the latest rules, will be taxable as a resident? Pls advise.
Thanks in advance.
Sincerely – Edwin F. D’Silva
Thnaks a lot Tax Guru for your immediate action of enlightening on NRI matters as requested. More important is the clarification rendered by Mr V S Mahadevan. Thanks to him.
pl note the education and higher education cess is apllicable for NRO account.Hence the TDS is 30.9%.Further it is not uniform for every NRO account as it depends on the country of residence of the NRI.Wherever DTAA (Double taxation avoidence aggrement) is entered by government of india with those countries,it will be at concessional rate for example UAE 12.5% USA 15% Srilanka 10%.These rates are inclusive of everything.Hence cess of 3% is not be applied
The article does not cover house property income, a common type of income of NRI’s. Is 30% applicable for any amount under this head? Further, what about educational cess of 3%? If that is added TDS may virtually work out to 30.9% gross on other incomes where 30% is deductible.