The concept of “Non Resident Indian” has been defined differently under various statutes such as the Income Tax Act, 1961 and Foreign Exchange Management Act (FEMA), 1999. The Citizenship Act, 1955 does not define “Non Resident Indian”. The Citizenship Act mainly provides for the acquisition and termination of citizenship. In brief, citizenship of India can be acquired by birth, descent, registration and naturalization.

Non Resident (NR) Vs. Non Resident Indians (NRI)

 

The term ‘Non Resident’ is a very broad term and includes non-residents who can be categorized as under:

(i)                Non Resident Indian citizens (NRIs),

(ii)             Non-resident foreign citizens, who may be further categorized as:

(a)  Non-resident foreign citizens of Indian origin (PIOs)

(b)  Non-resident foreign citizens of non-Indian origin.

Non-resident persons of Indian origin are given special treatment in respect of investment in India and for certain purposes they are treated almost at par with non-resident Indian nationals under FEMA, 1999 and are collectively referred to as “Non-resident Indians”.  (NRIs).

 

The term Non-resident (NR) thus includes NRIs and other non-resident foreign nationals. For the present purpose, we are concerned with only the concept of “Non Resident Indian”.

 

  1. Non Resident Indian under FEMA, 1999:

 

Section 2(w) of the Foreign Exchange Management Act, 1999 defines “person resident outside India” as a person who is not a resident in India.

 

Section 2(v) of FEMA defines “person resident in India” as follows:

“ (v)    “person resident in India” means-

 

(i)                a person residing in India for more than one hundred and eighty-two days during the course of the preceding financial year but does not include-

 

(A)            a person who has gone out of Indian or who stays outside India, in either case-

(a)        for or on taking up employment outside India, or

(b)        for carrying on outside India a business or vocation outside India, or

(c)        for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

 

(B)             a person who has come to or stays in India, in either case, otherwise than-

(a)        for or on taking up employment in India, or

(b)        for carrying on in India a business or vocation in India, or

(c)        for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period;

 

(ii)             any person or body corporate registered or incorporated in India,

(iii)           an office, branch or agency in India owned or controlled by a person resident outside India,

(iv)           an office, branch or agency outside India owned or controlled by a person resident in India.”

 

It is clear that persons who are not residents in India as per the aforesaid definition, would be a Non Resident Indians.

 

From the aforesaid definition, it is clear that an individual would be an NRI in the following cases:-

(a)              When a person stays in India for less than or up to 182 days during the preceding financial year. The period of stay may not be continuous. The period of stay shall be calculated by adding up days of stay in India during that financial year.

(b)              When a person stays outside India for any of the following purposes:

(i)                for or on taking up employment outside India, or

(ii)             for carrying on outside India a business or vocation outside India, or

(iii)           for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period.

In the above cases, a person becomes a Non-Resident Indian irrespective of the period of stay in India. It is relevant to state that while the period of stay in India (in (a) above) is to be calculated for the preceding financial year, the staying abroad for any of the aforesaid purpose (in (b) above) shall be reckoned for the current financial year.

(c)              When a person comes and stays in India, for any purpose other than the following:

(i)                for or on, taking up employment in India; or

(ii)             for carrying on in India a business or vocation in India; or

(iii)           for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period.

 

In such cases too, the person remains a non-resident, even if the period of his stay in India is more than 182 days. Again, in such cases, the period of stay in India shall be reckoned for the preceding financial year, while the event of coming or staying in India for a purpose as aforesaid shall be reckoned for the current financial year.

 

The aforesaid principles can be explained with the help of the following illustrations:

 

Mr. ‘A’ leaves India on 1st August, 2002 for taking up employment in a software company in USA. Mr. ‘A’ shall be treated as a non-resident though his stay in India during the preceding financial year was more than 182 days. However, till the date of his leaving India, he would be deemed as a resident.

 

Mr. ‘B’ comes to India during August 2002, for the purpose of the marriage of his son and stays here, upto March 2003. He shall be treated as non-resident for the year 2003-04 though he stays in India for more than 182 days during the year 2002-03.

 

The main emphasis is on the purpose of stay outside India. So long as an Indian citizen is engaged in some gainful employment outside India, he/she will be treated as ‘non-resident’ irrespective of the period of such employment.

 

Similarly, Non-Resident Indian citizens who come to India on temporary visits i.e. for purposes other than employment, business, etc. indicating no intention to stay in India indefinitely, even if their period of stay in India exceeds 182 days, will continue to be treated as non-resident. It is only when they come back to India permanently for employment or for carrying on any business or vocation in India or in circumstances indicating their intention to stay in India for an indefinite period that such persons will be treated as resident in India.

 

4.         The term “persons of Indian origin” has also been defined under the various regulations framed under FEMA 1999. “A Person of Indian Origin” means a citizen of any country other than Bangladesh or Pakistan, if-

(a)              he at any time held an Indian passport; or

(b)              he or either of his parents or any of his grand-parents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955 (57 of 1955); or

(c)              the person is a spouse of an Indian citizen or a person referred to in sub-clause (a) or (b).

Hence, even if a person acquires foreign citizenship, he may be a person of Indian origin.

 

5.         Non-Resident Indian under Income-tax Act, 1961:        The definition of a Non-Resident for the purpose of the Indian Income Tax Law is different than under the Foreign Exchange Management Act, 1999.

There are 3 categories of residential status under the Income Tax Law:

(i)                Resident in India.

(ii)             Not Resident in India i.e. non-residents, and

(iii)           Resident but not ordinarily resident.

 

Residential status is determined on the basis of physical presence for every year separately as per the provisions of Income-tax Act, 1961 as explained hereunder:

 

A.        Resident

(a)              An individual is resident if any of the following conditions are satisfied:

(i)                he stayed in India for 182 days or more during the previous year, or [Section 6(1) (a)]

(ii)             he stayed in India for 365 days or more during the four preceding years and stays in India for at least 60 days (182 days in case of an Indian citizen or a person of Indian origin coming on a visit to India or 182 days in case of an Indian citizen going abroad for an employment) during the previous year.[Section 6(1) (c)]

Stay in India for the above criteria may be continuous or intermittent.

(b)              Hindu Undivided Family (HUF) or firm or other Association of persons is resident of India except in cases where the control and management of its affairs is wholly situated outside India in the previous year. [Section 6(2)]

(c)              A company is resident in India of-

(i)                it is an Indian company, or

(ii)             during the previous year, the control and management is situated wholly in India. [Section 6(3)]

A person resident in India, in a previous year in respect of any source of income shall be deemed to be resident in India in respect of his other sources of income. [Section 6(5)]

 

 

 

B.        Non-Resident

A person is non-resident if he is not resident in India. [Section 2(30)]

 

  1. Resident but Not Ordinarily Resident

An individual or an HUF is treated to be not ordinarily resident in India in any previous year if he or the manager of HUF-

(a)              has not been resident in India in 9 out of the 10 previous years preceding the previous year; or

(b)              has not during the seven previous years preceding that year, been in India for a period of or periods amounting in all to 730 days or more.

 

From the aforesaid provisions of the Income Tax Law, the following principles are culled out:

 

(i)        In case of Indian citizen who leaves India during previous year for the purpose of employment and an Indian citizen or a person of Indian origin living abroad coming on a visit to India

The residential status of such person is determined after looking into the following conditions:

 

(a)       He stays in India for at least 182 days during the previous year.

(b)       He is resident in India for at least 9 out of 10 years preceding the previous year.

(c)              He has been in India for at least 730 days during 7 years preceding the previous year.

 

Such a person will be resident and ordinarily resident, if he satisfies all conditions (a) to (c) above.

 

If such a person satisfies condition (a) but does not satisfy either of conditions (b) or  (c) above, such a person will be resident but not ordinarily resident.

 

Such person will be non-resident if he does not satisfy condition (a) above.

 

(ii)       In case of any other individual

 

For individuals other than those included in category (i), we have to look in to the following four conditions to determine the residential status:

(a)       He stays in India for at least 182 days during the previous year.

(b)       He stays in India for at least 60 days during the previous year and for at least 365 days during 4 years preceding the previous year.

(c)       He is resident in India for at least 9 out of 10 years preceding the previous year.

(d)       He has been in India for at least 730 days during 7 years preceding the previous year.

A person will be resident and ordinarily resident in India if he satisfies either of the conditions (a) or (b) and both the conditions (c) and (d).

A person will be resident but not ordinary resident if he satisfies either of the conditions (a) or (b) and does not satisfy either of the conditions (c) or (d).

If the person satisfies neither of the conditions (a) or (b), he is non-resident.

 

Since the principals for determining the residential status of a person are different under FEMA and the Income Tax Act, 1961, a person may be a non-resident under one of the said laws and a resident under the other. By satisfying the conditions of non-residency under both the laws, the person is a Non-Resident Indian (NRI) under both the said laws.

 

The residential/non-residential status of a person can be determined by applying the aforesaid principles.

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