- Date : 28/09/2023
- Read: 3 mins
NRIs are individuals of Indian origin residing abroad. They may face higher investments and capital gains TDS, potentially exceeding their actual tax liability.
People of Indian origin residing abroad encounter a number of evolving regulations that significantly influence their tax planning and management of assets. However, these rules governing NRI (non-resident Indian) status maintain the complexities associated with NRI taxation. Let's explore these rules in depth.
NRIs returning to India temporarily acquire RNOR (Resident but Not Ordinarily Resident) status for 2-3 years, then potentially become ROR (Resident and Ordinarily Resident).
To maintain NRI status, rules include staying in India for 182+ days, having a presence for 60+ days in the relevant year, 365+ days in the preceding four years, and paying taxes if earning over Rs. 15 lakhs from Indian sources.
NRIs may exclude specific income from taxation, but additional income sources must be declared as per tax rules.
An NRI is someone who lives in another country but still holds Indian citizenship or is a Person of Indian Origin (PIO).
Section 6(6) of the Income Tax Act defines an ROR based on spending 730 days in India within seven years. Alternatively, they must reside in India for at least two of the preceding ten fiscal years, influencing tax and residential status.
Also Read: NRI tax in India: Dividend taxation
Rules governing NRI status
When it comes to NRI taxation, there are certain fixed rules. Upon your return to India, your NRI status will initially transition to RNOR status for a period of 2-3 years. Eventually, if the conditions for RNOR status are no longer met, your residential status will shift to ROR. It's worth noting that the NRI and an RNOR tax are identical.
To maintain NRI status, there are specific rules and conditions that need to be followed:
The individual should stay in India for 182 days or more during the specific financial year.
Their physical presence in India should add up to 60 days or more during the relevant financial year and reach 365 days or more in the preceding four financial years.
Suppose an Indian citizen earns over Rs. 15 lakhs from Indian sources in a fiscal year and isn't subject to taxes in any other country due to domicile or residency. In that case, they have to pay taxes in India.
It's important to note that the 60-day condition extends to 182 days if the individual, being an Indian citizen, leaves India for employment outside India.
Also Read: Filing crypto taxes as an NRI
Tax returns for NRI
An NRI's taxable income may exclude certain investments and long-term capital gains, as these incomes often have taxes deducted at the source (TDS). Any additional income sources must be declared and are subject to prevailing tax rules. In some cases, TDS on investment and long-term capital gains can exceed the individual's actual tax liability.
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Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.