Taxation of Non-Resident Individual (NRI) Part 1 : Concept of NRI By: Ayushi Raja

 

(The author is an article assistant at SSRPN & Co. She can be approached at Cassrpn@gmail.com)

Tax collected from the citizens lays down the foundation for a country’s economy. It is the major source of income of any country through which it fosters its growth.

The Income Tax Act 1961, includes a concept on NRI Taxation. Does this mean that Non Resident Individuals will be taxed too?

NRI Taxtion under the Income Tax Act applies to those earning income outside the home country. For understanding the concept of NRI Taxation, we must first understand the meaning of Non Resident Individual (NRI).

The basic conditions for an Individual to qualify as a Resident of India are:

1. Stay in India for 182 days or more during the current Financial Year.

OR

2. Stay of 365 days or more in the preceeding four Financial Years

And

Stay of 60 days or more in the current Financial Year.

Note: Cases wherein the 2^nd  condition  (of 365 days in 4PY and 60 days in a FY) does not apply:

1. A citizen of India who leaves the country for the purpose of taking up any business/ profession/employment/ any other vacation outside India.

2. A citizen of India who leaves India as a ship crew member of an Indian Ship.

3. A citizen of India or person of Indian Origin and has business/ profession/ employment outside India and has come to India on a visit.

If the individuals do not meet any of the following conditions, they shall be considered as a Non-Resident Indian.

The resident Individuals shall be further classified into Resident but Ordinary Resident (ROR) and Resident but Not-Ordinary Resident (RNOR).

The individuals shall be treated as Resident but Ordinary Resident if they meet any of the following conditions:

1. If you’ve been a resident in India for 9 years out of 10 previous years preceding the years

OR

2. If you’ve stayed in India 730 days or more during 7 previous preceeding Financial Years.

The Finance Act 2020 has amended the residency provisions to include Indian Citizen/ Person of Indian Origin, who comes to visit India shall now be considered as a RNOR and not Non-Resident subject to the following conditions:

1. Total Income of the Individual other than Foreign Income exceeds Rs. 15 Lakhs.

2. The individual has stayed in India for more than 120 days but for less than 182 days in the previous year.

3. The individual has stayed in India for 365 days or more in four years preceeding the previous year.

It is to be further noted that in the above amendment, an individual staying for more than 182 days shall be classified as a resident irrespective of the level of income in the previous year.

I shall be discussing the concept of NRI Taxation along with its other aspects in the further articles.