How to determine that an Individual is NRI

The Indian income tax law determines the NRI status on the basis of the number of days an individual stays in India, not on the basis of citizenship in India. An individual gets confused when he comes to India for a few days and calculates his residential status. As per the Indian tax law, it is important to check your residential status because income tax is calculated on the income which is earned or deemed to be earned in India if you are a resident of India. For an NRI, any income earned outside India is not taxable in India.

Let us come to understand how an individual can determine his residential status as per the income tax act 1961.

Who is NRI: Non-resident Indian’ is an individual who is a citizen of India or a person of Indian origin and who is not a resident of India.

Income tax specified deals with the residential status of individuals, HUF, Company and other persons. As per section 6 of the income tax act a person can be said to be NRI if does not satisfy any of the following conditions:

 1.  If he is in India for a period of 182 days or more during the previous year; or

 2.  If he is in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year.

However, the 60-day limit indicated in (2) above shall be replaced with 182 days in the case of an Indian citizen and a person of Indian origin who visits India throughout the year.

Indian citizens who left India as a crew member or for job purposes outside of India in any preceding year were given the same privilege i.e 60 days limits substitutes with 182 days.

The Finance Act, 2020, w.e.f., Assessment Year 2021-22 has amended the above exception to provide that the period of 60 days as mentioned in (2) above shall be substituted with 120 days, if the previous year’s total income for an Indian citizen or person of Indian origin exceeded Rs.15 lakhs, excluding income from foreign sources.

What is Foreign source income:  Income from foreign sources means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).

Note: The Finance Act, 2020 has introduced new section 6(1A) to the Income-tax Act, 1961. An Indian citizen will only be considered to be a resident of India under the new provision if his total income, excluding income from foreign sources, exceeded Rs. 15 lakhs during the previous year. For this provision, income from foreign sources means income which accrues or arises outside India (except income derived from a business controlled in or a profession set up in India).

To be considered an Indian resident, a person must not be subject to taxation in any other country or jurisdiction by reason of his domicile or residence or any other criteria of similar nature.

Therefore, from Assessment Year 2021-22, An Indian citizen who earns total income of more than Rs. 15 lakhs from sources other than foreign income is presumed to resident of India if he is not required to pay tax in any other country.

Who is a person of Indian Origin: A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grandparents, was born in undivided India.

Relevant Judgements:

1. Assessee was in India for a period of 78 days during the relevant assessment year and more than 65 days during the past four years. It was held that the assessee was on deputation from April 2004 to January 2005 and his stay from 18th Aug 2004 to 6th September 2004 was in respect of a visit to India and this is to be excluded while computing the applicability of section 6(1)(c). Thus, his status was to be of a non-resident. DIT v. Manoj Kumar Reddy Nare (2011) 62 DTR 358 / 201 Taxman 30 / 245 CTR 350 (Karn.)(High Court)

2. Tribunal held that the benefit of the Agreement shall be applicable to persons, who are residents of both India as well as Australia. Hence, the contention of the Department that the assessee being a nonresident and hence treaty benefit could not be extended to the assessee was incorrect. Article 15 categorically mentioned that salary income shall be taxable only in Australia, in the case of an individual, who is a resident of Australia. The assessee was a resident of Australia and non-resident of India during the year 2014-15. Hence, the assessee would be entitled to the benefit of article 15 of the Agreement under which salary income of a resident of Australia is taxable only in Australia. Therefore the salary earned by the assessee in respect of services rendered in Australia for the period August 31, 2014 to March 31, 2015 was taxable only in Australia (this is also duly offered to tax by the assessee in Australia as evident from Australian tax return filed by the assessee) and not in India. Paul Xavier Antonysamy v. ITO (2020) 183 ITD 453 / 78 ITR 48 (SN) (Chennai)(Tribunal.)

3. Question:

Whether the income by way of salary which became due and has accrued to the assessee, a non-resident, for services rendered outside India and which is not chargeable to tax in India on the “due” or “accrual” basis, can be said to be chargeable to tax on the “receipt” basis merely because the foreign employers, on the instructions of the assessee, have remitted a part of amount of salary to the assessee’s NRE bank account in India?

Answer:

Salary of a non-resident seafarer for services rendered outside India on-board foreign ships accrues outside India and is not assessable in India even if received by the seafarer into the NRE bank account maintained in India by the seafarer.

Salary becomes taxable irrespective of the fact whether it is actually received or not only when services are rendered in India, it becomes taxable by implication. However, if services are rendered outside India such income would not be taxable in India.” Sumana Bandyopadhyay vs. DDIT (Calcutta High Court)