In India, an individual’s tax liability is contingent upon their residential status, which is categorized into three types under the Income Tax Act of 1961:

1. Resident (ROR)
2. Resident but Not Ordinarily Resident (RNOR)
3. Non-Resident (NR)

The term “Non-Resident Indian” (NRI) is not explicitly defined in the Income Tax Act but is determined based on specific criteria.

Residential Criteria

As per Section 6(1) of the Income Tax Act, an individual is considered a resident in India if they meet any of the following conditions:

• Stay in India for 182 days or more in a financial year.
• Stay in India for 60 days or more in a financial year and 365 days or more during the four years immediately preceding the previous year.

Notably, for Indian citizens working abroad or crew members on Indian ships, only the first condition applies. The Finance Act 2020 introduced a significant amendment for Indian citizens or Persons of Indian Origin visiting India, impacting their residential status.

Finance Act Amendment 2020

The Finance Act 2020 amended residency provisions, now classifying Indian citizens or Persons of Indian Origin as RNOR under specific conditions:

• Total income (excluding foreign income) is Rs 15 lakh or more.
• Stayed in India for more than 120 days but less than 182 days in the previous year.
• Stayed in India for 365 days or more in the four years preceding the previous year.

This change may result in the loss of Double Taxation Avoidance Agreement (DTAA) benefits, an increased scope of total income for taxability, and the loss of various exemptions.

Tax Liability for NRIs

For Non-Resident Indians (NRIs), the tax burden in India is limited to income earned within the country. They are not required to pay tax in India on their international earnings.

Income Categories for NRIs

1. Income from Salary: Taxable only if earned for services provided in India.

2. Income from House Property: Taxable if the property is situated in India, following the same calculation methods as applicable to residents.

3. Income from Capital Gains: Taxable for gains from the transfer of assets situated in India, including investments in Indian shares and securities.

4. Income from Other Sources:

   • Interest income from fixed deposits and savings accounts in Indian banks is taxable.
   • Interest on NRE and FCNR accounts is tax-free.
   • Interest on NRO accounts is fully taxable.

5. Income from Business and Profession: Any income earned by an NRI from a business controlled or set up in India is taxable.

Understanding these tax implications is crucial for NRIs to comply with Indian tax regulations and explore available relief mechanisms under DTAA.