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Non Resident Indian under Income Tax Act-1961

Non Resident Indian under Income Tax Act-1961

Non Resident Indian is abbreviated by NRI. The Person of Indian Origin (PIO) who is residing outside India permanently is called as NRI. In another way, NRI is Indian citizen migrated to another country. Income Tax Act has not directly defined NRI. Section 6 contains detailed criteria of who is considered as Resident in India and provides that anyone who doesn’t meet these criteria is Non-Resident. Liability to pay tax in India does not depend on the nationality or domicile of the Tax payer but on his residential status.

The status of a person as a resident or non-resident depends on his period of stay in India. The period of stay is counted in number of days for each financial year beginning from 1st April to 31st March (known as previous year under the Income-tax Act).

Resident
An individual will be treated as a Resident in India in any previous year if he/she is in India for:
Atleast 182 days in that year, OR Atleast 365 days during 4 years preceeding that year AND atleast 60 days in that year.
An individual who does not satisfy both the conditions as mentioned above will be treated as “non-resident” in that previous year.

Therefore Non Resident:
An individual residing abroad is defined as a Non-Resident in a Financial Year under the Income Tax Act if his stay does not exceed 181 days.
However for determining residential status of an NRI returning to India for permanent settlement , for the year of return, besides the stay not exceeding 181 days an additional condition is applicable that of stay not totaling to 60 days or more in relevant year if his stay in earlier 4 years totaled to 365 days or more.

The current tax law states that an Indian citizen who stays abroad for employment or is carrying on business for an uncertain duration is a non-resident. However, an NRI becomes a ‘resident’ of India in any financial year, if he stays in India for 182 days or more. The added stipulation is that a person will be deemed as resident if he has also visited in India for 365 days or more in the preceding four financial years.

In the new DTC (The New Direct Tax Code (DTC) is said to replace the existing Income Tax Act of 1961 in India. DTC bill was tabled in parliament on 3oth August, 2010.) , the 182-day requirement has been reduced to 60 days. This change could impact the residential status for select NRIs, say tax experts. But it has not been implemented yet.

“Under the Direct Tax Code, NRIs who have historically been spending significant time in India stand to become residents the moment their stay in India exceeds 60 days in the financial year” says Amitabh Singh, Partner, Tax & Regulatory Services, Ernst and Young.

A resident becomes ‘ordinarily resident’ under the Income Tax Act if he was resident in India in nine out of the ten previous years and has been in India for 730 days or more during the seven years preceding that year. In such cases, even global income of these NRIs could be added to the Indian income.

Ø Income from the Indian salary
Ø Income from the bank interest(from the India Resident savings account)
Ø Income from pension
Ø Income from agriculture
Ø Income from house rental income
Ø Income from sale of stocks or mutual funds
Ø IPO or employee stock options(ESOP)
Ø Income from sale of house property

Non Resident Indian under Income Tax Act-1961

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