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Are You Non Resident Indian

Definition of Non-Resident-Indian

The term ‘Non-Resident-Indian’ refers to a person who is not resident in India . Following the repeal of the Foreign Exchange Regulation Act 1973 (FERA), there are two clear but separate definitions – one under the Foreign Exchange Management Act 1999 (FEMA), and the other under the Income Tax Act 1961.

Under the Foreign Exchange Management Act (FEMA)

The Foreign Exchange Management Act 1999 (FEMA), replaced the Foreign Exchange Regulation Act (FERA) with effect from June 1, 2000 . Sections 2 (v) and 2 (w) of this Act have the following definitions.

Person resident in India:

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 person who has gone out of India or stays outside India, in either case

For or on taking up employment outside India, or

For carrying on a business or vocation outside India, or

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

A person who has come to India or stays in India, in either case other than:

For or on taking up employment in India , or

For carrying on a business or vocation in India , or

For any other purpose in such circumstances as would indicate his intention to stay in India for an uncertain period:

  • Any person or corporate body registered or incorporated in India .
  • An office, branch or agency in India owned or controlled by a person resident outside India .
  • An office, branch or agency in India outside India owned or controlled by a person resident in India

A person resident outside India

A person who is not resident in India i.e. a person who stays outside India or has otherwise gone out of India.

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

(b) for carrying on 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.

Under the Income Tax Act

Tax liability in India is determined by the residential status of an individual. There are three categories:

  • Non-Resident
  • Not Ordinarily Resident
  • Resident

Non-Resident

Under Section 115C (e) of the Income Tax Act 1961, a Non-Resident Indian means an individual, who being a citizen of India, is not a “resident”. Thus, every India citizen who is a Non-Resident in India in any previous year is a Non-Resident India.

A person is considered Non-Resident under the Income Tax Act if his stay in India does not exceed the limits specified below in a financial year. In this context, a financial year is considered to be from April 1 to March 31.

If the stay does not exceed

  • General rule

59 days

  • Person whose total stay in India during the preceding 4 years has not exceeded 364 days

181 days

  • Year of leaving India for employment outside India (Indian citizens only)

181 days

  • Year of leaving India as a member of the crew of an Indian ship (Indian citizens only)

181 days

  • Visits to India (for Indian citizens and persons of Indian origin only

An individual of Indian origin, though not a citizen of India , is also considered as a Non-Resident Indian.

A person is considered to be a person of Indian origin if he or either of his parents or any of his grandparents were born in undivided India . This does not include those in Pakistan or Bangladesh.

Not Ordinarily Resident

A resident individual is treated as Non Ordinarily Resident (NOR) if he satisfies either of the following tests:

  • He has not been a resident in India for nine of the ten preceding year, or.
  • If he has not been in India for a period of 730 days or more during the preceding seven years.

It was widely held that if a person qualifies as a Non-Resident (under the Income Tax Act) for two successive years, he will be eligible to be considered as NOR for nine subsequent years.

The tax benefit of being NOR is that any foreign income earned in the next subsequent years will be exempted from income tax even if the person is in India for all or most of the time or has returned to India. The foreign income should not have been derived from a business controlled in India or a profession setup in India

Resident In India

It is also important to be aware of what a resident is. Section 6 (i) of the Income Tax Act 1961, defines a resident as a person who has:

  • in that year been in India for a period or periods amounting in all to 182 days or more, or
  • within the four years preceding that year been in India for a period or periods amounting in all to 365 days or more and has been in India  for 60 days or more in that year.

A Hindu Undivided Family (HUF) firm or an association of persons or a body of individuals is resident in India in any previous year except when during that year, the control and management of its affairs are situated wholly outside India. Even if a part of the control and management of the affairs of a HUF or partnership firm or of an association of persons is situated in India , it would be considered to be resident in India (Section 6(2) of the Income Tax Act 1961). A HUF will be treated as a ‘Non Ordinarily Resident’ if the manager of the HUF has not been resident in India in nine out of ten previous years preceding that year and has not during the seven previous years preceding that year been in India for a period or periods amounting in all to seven hundred and thirty days (i.e. two years) or more [Section 6 (6)(b) ].

A company is said to be resident in India in any previous year according to Section 6(3) of the Income Tax Act if it satisfies any of the following two conditions:

  • It is an Indian company, or
  • During that year, the control and management of its affairs is situated wholly in India.