Non-resident of India as per Income Tax Act,1961

In general sense, we always refer any person who is of an Indian origin but resides in a foreign country as NRI. However, this above statement is half truth. Income Tax Act, 1961 has given various mandatory conditions to be fulfilled in order to determine whether a person is NRI or not.

It is  important to ascertain whether a person is an NRI or Resident in order to determine his taxability.
One has to understand that a foreign citizen may also end up being a resident of India for income tax purposes for a particular year.

Meaning of NRI
‘Non-resident Indian’ is an individual who is a citizen of India or a person of Indian origin and who is not a resident of India. Thus, in order to determine whether an Individual is a non-resident Indian or not, his residential status is required to be determined under Section 6 of Income Tax Act, 1961.

Following are different types of taxable persons as classified by Income Tax Act,1961 :

  1. A Resident (R)
  2. A Resident not ordinarily resident (RNOR)
  3. An Non-Resident of India (NRI)

We have to understand meaning of Resident in detail to have a clarity about the concept of NRI.

Therefore, an individual is said to be non-resident in India if he is not a resident in India and an individual is deemed to be resident in India in any previous year if he satisfies any of the following conditions:

1.  If he is in India for a period of 182 days or more during the previous year (i.e. relevant financial year); or
2.  If he is in India for a period of 60 days or more during the previous year(i.e. relevant financial year) and 365 days or more during 4 years immediately preceding the previous year(i.e. years before relevant financial year).

Taxability of NRI
NRI is liable to pay tax only on the income which he has earned in India. Income of NRI outside India is not liable to tax in India. However, this is to be understood in detail with provisions regarding to Double Taxation Avoidance Agreement that India may have with different foreign countries to assure that there is no Double Taxation on Income of a person.

NRIs are eligible to claim certain deductions under 80C and other various sections while filing their Income Tax Returns.

   Let us have an overview on taxability of NRI:

Is NRI only Individual?
Income has classified persons in various categories which not only includes Individuals but also includes firms, AOP, BOIs, Companies, Trusts etc. Hence, there are different provisions to determine residential status of every different type of person.

In order to determine who is Non-resident of India , one must focus on various following factors which are also required to understand taxability of that person :

  • Any person as per Income Tax Act,1961 who is not a resident or not ordinarily resident
  • Any person can be NRI i.e. Individual, firm, company, trust etc. subject to provisions
  • NRI status is determined for every relevant financial year
  • NRI can claim certain specific deductions while filing ITR, though not all the deductions that are available to individuals, firms or companies etc. are allowed to NRI

About Author:
CA Chinmay Shirish Agate
Chinmay Agate is a Practicing Chartered Accountant having 4+ years of experience and expertise in the field of Direct Taxation and Auditing compliances. In the past, he worked in various CA firms and comes with wide industry experience from services, retail to manufacturing to trading where he has handled various complex assignments. He has keen interest in Forex and Derivative knowledge as well as fundamental analysis.

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