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How the tax department defines an NRI

Larissa Fernand

There are two ways in which a non-resident Indian is defined, depending on which Act you look at. While the Income Tax Act defines an NRI for the basis of tax purposes, under the Foreign Exchange Regulation Act (FERA), it is for foreign exchange and banking purposes.

The Income Tax Act arrives at its conclusion based on the number of days an individual stays in India. Under section 6(1) of the Income Tax Act, 1961, an individual is declared a resident if he satisfies either of the following conditions:

• Resided in India the previous year for a minimum period of 182 days.
  

• Resided in India the previous year for a minimum period of 60 days or more and 365 days or more during the four years immediately preceding the previous year. If you had proceeded abroad for the purpose of employment, then 60 days is to be substituted by 182 days.
  

Further, under section 6(6), an individual is treated as 'Resident and Ordinarily Resident' in India if he satisfies at least one of the following two additional conditions:

• He has been a resident in India at least 9 out of the 10 previous years immediately preceding the relevant previous year
• He has been in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year

If either or both the additional conditions are not satisfied, then he will attain the status of 'Resident but not Ordinarily Resident' (RNOR).

So the very first year in which you are leaving to go abroad, do so before 181 days is completed in India or else you will not get an NRI status and that will mean your total income for the year, including your foreign income, will be taxed.

Under FERA, your status as an NRI is based on the intention of stay abroad. You can open a Non-Resident External bank account or repatriate funds only if the Act recognizes you as an Indian citizen who has gone abroad for employment purposes or to conduct business. So if you have gone abroad for a holiday, for medical treatment or for pursuing studies, then you are not an NRI under FERA.

Also see: NRI status calculator designed by Ganesh Jagadeesh & Co

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