Can You Be a Resident Indian and an NRI at the Same Time?
India has one of the largest diaspora populations in the world, with millions of Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) living across the globe. However, the definitions of NRI, Resident & Not Ordinarily Resident (RNOR), and Resident Indian can often be confusing. This blog aims to clarify these terms from both an investment and taxation perspective.
Who is an NRI?
A person staying abroad is generally referred to as a Non-Resident Indian (NRI). However, the legal definition differs under two key regulations:
Foreign Exchange Management Act (FEMA), 1999 (For investment purposes)
A person is considered a Resident of India if they stay for 183 days or more in India during the preceding financial year (April 1 to March 31). Otherwise, they are classified as a Non-Resident.
Exceptions apply if:
- They have left India for employment or to carry out a business abroad.
- Their departure suggests an intention to stay abroad for an uncertain period.
Income Tax Act, 1961 (For taxation purposes)
A person is considered an Indian Resident if any of these conditions are met:
- They are in India for 182 days or more in the financial year.
- They have been in India for 365 days in the last 4 financial years AND 60 days in the current financial year.
Exceptions:
- If a person leaves India for employment or as a crew member of an Indian merchant ship, the 60-day requirement is extended to 182 days.
- For Indian Citizens or PIOs visiting India, the 60-day rule is replaced with 182 days. However, if their Indian income exceeds Rs. 15 lakh, the limit is reduced to 120 days.
Key Differences Between Income Tax Act and FEMA
| Criteria | Income Tax Act | FEMA |
| Financial Year | April 1 – March 31 | Not defined (assumed as April 1 – March 31) |
| Residency Basis | Based on physical presence in the current financial year | Based on presence in the preceding financial year |
| Classification | Resident or Non-Resident for the full year | Can be an NRI and Resident Indian for different parts of the year |
| Permanent NRIs | May become Residents if criteria met | Always considered NRI, regardless of duration of stay in India |
Types of Indian Residents
A Resident Indian can be further classified into:
1. Resident and Not Ordinarily Resident (RNOR)
A person qualifies as RNOR if they meet any of the following conditions:
- NRI for 9 out of the last 10 years.
- In India for less than 729 days in the last 7 financial years.
- Indian Citizen who is not a tax resident in any other country, with an Indian income exceeding Rs. 15 lakh.
- Indian Citizen/PIO with an Indian income exceeding Rs. 15 lakh and a stay in India between 120 to 181 days in the previous year.
2. Resident and Ordinarily Resident (ROR)
If a person does not qualify as RNOR, they are classified as an ROR, meaning they are taxed on their global income.
Who are PIOs & OCIs?
Person of Indian Origin (PIO)
A PIO is a citizen of any country (except Pakistan & Bangladesh) who:
- Holds an Indian passport.
- Has parents/grandparents who were Indian citizens.
- Is married to an Indian citizen.
Overseas Citizenship of India (OCI)
India does not allow dual citizenship, but the OCI Card grants long-term residency without voting or government job rights.
Why Are These Definitions Important?
Understanding your residency status is crucial for taxation and investment purposes:
- FEMA determines where you can invest and which bank accounts (Savings, NRE, NRO) you can use.
- Income Tax Act decides how your income will be taxed.
For example:
- Investment Eligibility: Owning NRE/NRO accounts or investing in PPF and agricultural land depends on FEMA status.
- Taxation: Your tax obligations depend on Income Tax Act definitions, regardless of your FEMA classification.
Can You Be an NRI and a Resident Indian in the Same Year?
Yes, under FEMA, you can be an NRI for part of the year and a Resident Indian for another part. However, under the Income Tax Act, you are either a Resident or Non-Resident for the entire financial year.
Final Thoughts
Understanding these definitions helps in better financial planning, ensuring compliance with tax laws and optimizing investment opportunities. If you are an NRI or planning to become one, consult a financial expert to navigate your investments and taxation efficiently.
If you’re interested in investing in India as an NRI, feel free to contact me. You can also explore more personal finance insights on my website blog or YouTube channel. Stay informed and make smart financial decisions!
