Are you an Indian citizen living abroad and unsure of your financial and legal obligations? If so, you might be classified as an NRI or Non-Resident Indian. Understanding the NRI meaning is essential, as it can influence everything from taxes to investments. This knowledge is crucial for anyone navigating life between two countries, ensuring you make the best decisions for your financial future.
Who is an NRI?
An NRI, or Non-Resident Indian, refers to a citizen of India who resides outside the country for more than 182 days in a financial year. This classification is vital for tax purposes, banking, and investments. NRIs maintain Indian citizenship and retain voting rights, but their global income and investments are subject to Indian laws and tax regulations.
Who is considered an NRI?
To be considered an NRI, certain criteria must be met:
- Duration of stay abroad: The individual must reside outside India for more than 182 days in a financial year.
- Purpose of stay: The reason for staying abroad could be for employment, business, education, or any other legitimate purpose that requires a prolonged stay outside India.
- Intention to stay abroad: The intention to stay abroad for an uncertain period also classifies one as an NRI.
It’s important to note that if an individual is outside India for a short duration or holiday, they are not considered an NRI.
Benefits for NRIs
- Tax-free interest on NRE Accounts: NRIs can open a Non-Resident External (NRE) account in India, where the interest earned is completely tax-free. Additionally, both the principal and interest are fully repatriable.
- Double taxation avoidance: India has Double Taxation Avoidance Agreements (DTAA) with many countries, including the USA, UK, Canada, Australia, and several European nations. These agreements help NRIs reduce or eliminate the tax burden on the same income in both India and their country of residence, ensuring they aren't taxed twice on the same income.
- Investment opportunities: NRIs have access to a broad range of investment options in India, including mutual funds, real estate, and government bonds. These investments can often yield higher returns compared to their country of residence.
- Property ownership: NRIs can purchase property in India, except for agricultural land. This offers a valuable asset and potential rental income.
- Financial repatriation: NRIs can easily repatriate funds from their Indian accounts to their country of residence, ensuring flexibility in managing finances.
Disadvantages of being an NRI
- Limited access to some investment schemes: NRIs are restricted from opening new accounts in popular investment options like the Public Provident Fund and the National Savings Certificate (NSC) after they attain NRI status. However, any existing investments made before becoming an NRI can continue until they reach maturity.
- Complex regulatory compliance: Navigating the regulatory requirements in both India and the country of residence can be challenging, especially when it comes to filing tax returns and managing dual residency.
- Currency risk: NRIs often face the challenge of currency fluctuations, which can impact the value of their Indian investments and remittances.
- Limited banking services: Some banking services in India are restricted for NRIs, such as the ability to open a regular savings account or invest in certain government schemes.
Financial and tax implications for NRIs
- Income from salary: If your salary is received directly into an Indian bank account or if the services are provided in India, that income is taxable in India. This applies even if you are an NRI. However, if the salary is credited to an NRE account then it is not taxable.
- Income from house property: Any income generated from property you own in India, whether rented or vacant, is taxable. You can claim standard deductions and interest deductions on Home Loans, just like a resident taxpayer.
- Income from capital gains: Profits from the sale of assets located in India are subject to capital gains tax. You can also claim tax exemptions under Sections 54, 54EC, and 54F for long-term capital gains, similar to resident Indians.
- Income from business / profession: If you earn income from a business or profession in India, it is taxed under the same slabs as residents.
- Income from other sources: Interest earned on fixed deposits and savings accounts in India is taxable. However, interest earned on NRE and FCNR accounts is tax-free, while interest on NRO accounts is fully taxable.
Conclusion
Understanding your NRI status is essential for managing financial and legal responsibilities effectively while living abroad. With the right knowledge, you can leverage the benefits and navigate the challenges that come with this status. Axis Bank offers specialised NRE and NRO Accounts, providing robust support to help you manage your finances smoothly and efficiently, wherever you are in the world.
Also Read: Difference Between NRE & NRO Account
FAQs
How is an NRI different from an OCI or PIO?
An NRI is an Indian citizen living abroad. An OCI is a foreign citizen of Indian origin with special rights in India. The PIO scheme, offering similar privileges, has now merged with OCI.
Are there any specific visa or residency requirements for NRIs?
NRIs must hold a valid visa or residency permit in their country of residence. NRI status is determined by residing outside India for more than 182 days in a financial year.
Are NRIs required to file income tax returns in India?
Yes, NRIs must file income tax returns in India if their income exceeds the basic exemption limit or under additional scenarios where an NRI enters into specific financial activities as laid down by the tax department under sec 139 of the Income Tax Act,1961.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
