- NRI is a person who is a citizen of India or person of Indian origin who is not a ‘resident’, due to stay outside India for specified period in a financial year and qualifies as Non Resident per the Income Tax Act (section 115C). Under Foreign Exchange Management Act (FEMA), NRI includes a person resident outside India who is either a citizen of India or is a Person of Indian Origin (PIO).
- PIO means a citizen of any country other than Bangladesh or Pakistan, and who at any time held Indian Passport, or who or either of whose parents or any of the grand parents was a citizen of India, or who is spouse of an Indian citizen or spouse of person referred to in 1 and 2 above.
- OCI is a citizen of a country other than India, say USA, who is a Person of Indian Origin (PIO) and who has obtained a Overseas Citizen of India (life long visa) to live in or visit India. OCI enjoys most of the rights of Indian Citizens, except right to vote and some restrictions such as cannot buy agricultural property, under regulations such as FEMA. For more details refer https://ociservices.gov.in/
Till now, a person who spent 182 days or more outside of India was considered an Indian. This has been changed. As per the changes in the Income Tax Act, Indian citizens who spend at least 245 days out of India will be considered as NRIs. The relevant authorities’ have analysed that there are many people who are carrying out income-generating activities from India but manage their period of stay in India such that they remain NRIs. This change is brought to bring them under the tax net.
Until now, individuals who go out of India for employment were considered as NRIs if they stay in India for less than 183 days. This duration of stay is now reduced to 120 days.
Tax on Global Income
This one is huge – India just has become the second major country in the world which can tax its citizens on the global income.
To qualify as NRIs, Indians will have to be tax residents of another country apart from the stay regulations that I mentioned above. If the NRI is not paying tax because of visa status or domicile status. The NRI will be considered as an Indian resident as per the Income Tax Act and their total income would be taxable in India.
NRIs are allowed to apply for IPO, per the details given in the offer document of the IPO. You can apply via the Demat Account opened by the NRI. There are overall limits for NRI investments per SEBI guidelines that need to be followed.
Gift Tax is paid by the person giving the gift (doner). If the gift is made by a NRI resident in USA, the tax laws of USA apply. Gift tax in USA has some exclusions (example, gift to spouse, gift for tuition or medical expenses), and there is an annual exemption which is $15000 in 2019. Similarly Git tax is applicable in India and has some exclusions.
NRIs are liable to pay tax on the income received or accrued in India even if they are not living in India.
NRIs can avail for loans in India. They can take loans to buy residential properties, commercial properties and for buying land for residential purposes. There are some more steps in the process of assigning a Power of Attorney and the tenure of the home loan is usually between 5-15 years.
Car loans are given to NRIs only residing in certain countries. Some banks allow the NRI to be a guarantor but the owner of the car has to be a resident Indian. Other banks have restrictions of age or require a mortgage.
ELSS or Equity Linked Savings Scheme are mutual funds that qualify for tax savings unto 150,000 Rupees under Section 80C of the Income Tax act. ELSS has a lock-in period of 3 years. They are a good tax saving option for NRIs, in addition to offering the potential for appreciation as they are invested in shares.
Yes, a NRI can obtain a loan. Two key options are: a) Borrow abroad and convert to India. Or b) Borrow in India and send money from abroad for loan repayments (unless you have cashflow in India to service the loan). The factors include cost of borrowing, currency depreciation, tax benefits, and flexibility of each option.
There are various websites for a savvy NRI that includes nri taxation, for example: a.) TAXSUTRA.com b.) TAXGURU.in. However it is best to refer to the official websites: https://www.irs.govfor USA Income Tax and https://www.incometaxindia.gov.in/Pages/default.aspxfor India Income Tax.
The tax filing status and scope of income in India depends on days of stay in India in the financial year preceding the year of filing taxes (assessment year). If stayed 182 days or more, for example, (1 of the criteria), the person is Ordinary Resident and needs to file tax on global income. If not a Resident then only India source income is taxed, and a tax return would be needed.
There are 3 types of accounts for NRI:
NRE (Non-Resident External Account) – It can be opened in a foreign currency and maintained in INR. Interest earned on this account is tax-free. It cannot be held jointly with a resident Indian. The amount is fully repatriable.
NRO (Non-Resident Ordinary Account) – It is INR account – similar to a normal savings bank account. The NRI has to pay tax on interest earned on this account.
FCNR – It is for term deposits. It can be opened by NRIs and held jointly with resident Indians. Principal and interest amounts are tax-free. It can be maintained till maturity even if the status of the person holding the account changes from NRI to Resident Indian.
“It’s illegal for NRIs to continue Resident Savings Account.”
An NRI can invest in direct equity. He needs to open an NRE or NRO account. This can be linked to a demat account which can be opened with any registered stock broker in India or Bank. He needs to have a trading account for the purchase and sale of shares and cash inflow and outflow. (Portfolio Investment Scheme is also an option)
Stocks – Dividend Income is not taxable (upto 10 lakh). Long term capital gains are taxable at 10%. Short term gains (less than 1 year) are taxable at 15%. NRIs from US and Canada have certain restrictions and can buy only a select few Mutual Fund schemes.
Mutual fund units are treated as capital assets and attract capital gains tax in India. Taxation is similar to resident Indian but TDS is applicable on capital gains.