Taxation of NRI's

Who is a resident of India?

A person who meets either of the following Basic conditions is considered a resident:

1. The person should have been in India for 182 days or more during the previous year
   OR
2. Should have been in India for 60 days or more during the previous year.

AND

He/she should have never left the country for the four preceding years.

Exceptions

1. If a citizen leaves the country for employment aboard he is not treated as a resident in that year, unless he has been in India for 182 days or more.
2. If a citizen from aboard comes to India, in the previous year, the period of 60 days [see (2) above] is extended to 182 days.

Additional Conditions

1. Must have been a resident in India for at least nine out of ten years prior to the previous year.AND
2. Must have been in India for 730 days or more during seven years preceding the previous year.

Resident Types and Tax Incidence

1. "Resident and Ordinarily Resident": The individual must satisfy any of the Basic conditions and both the Additional conditions. His/her income accrued globally are taxable.
2. "Resident but NOT Ordinarily Resident": The individual must satisfy either of the Basic conditions, but does not satisfy any of the Additional conditions. In this case, only income arising out of businesses controlled from India, or income earned in India, are taxable.
3. "Non-resident": If an individual does not satisfy any of the Basic conditions then income earned only in India is taxable.

Interest accrued from the following are totally exempt from tax for NRIs:

1. Notified securities, bonds, and premium on redemption of such securities.
2. Interest from NRE/FCNR Accounts.
3. Notified saving certificates subscribed in foreign currency.
4. Units of Unit Trust of India acquired in foreign exchange.
5. Notified deposits, bonds, securities, certificates, etc.
6. In case of notified bonds, exemption continues even after the person becomes a resident.
7. Interest paid by scheduled banks on approved foreign currency deposits.

Special Provisions For NRIS - Chapter XIIAS. 115C

S.115F: Capital gains arising on transfer of a specified asset is exempted from tax, if:

1. The asset transferred was a long-term capital asset.
2. Investment in certain specified assets.
3. The investment was made within six months of transfer.
4. A new asset was held for at least three years.

S. 115G: A NRI need not furnish his income returns, if:

The total income consists of only investment income or incomes by way of long-term capital gains or both (after appropriate deductions).

S. 115H: Continuance of Special Provisions after the NRI becomes a resident of India:

A NRI continues to enjoy the special provisions if he furnishes a declaration along with the Return of Income to that effect.