Who is a Non-Resident Indian
under Indian law?

Definition under FEMA — person resident in India

The Foreign Exchange Management Act, 1999 (FEMA) replaced the Foreign Exchange Regulation Act (FERA) with effect from 1 June 2000. The definitions of "person resident in India" and "person resident outside India" are contained in Sections 2(v) and 2(w) of the Act.

Under FEMA, a person resident in India is a person residing in India for more than 182 days during the course of the preceding financial year — but that definition does not include:

• A person who has gone out of India or who 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 an intention to stay outside India for an uncertain period.
• A person who has come to India or who 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 an intention to stay in India for an uncertain period.

The definition also covers certain entities:

• 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 outside India owned or controlled by a person resident in India.

Person resident outside India

Under FEMA, a person resident outside India is a person who is not resident in India — that is, a person who stays outside India, or who has otherwise gone out of India:

• 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 an intention to stay outside India for an uncertain period.

What matters under FEMA is not merely the physical count of days. The stated intention of the person — whether they have gone abroad for employment, business, or a purpose that indicates an indefinite stay — is part of the test. A person who has gone abroad for a defined, short purpose may remain a person resident in India for FEMA purposes notwithstanding that they were abroad for more than 182 days.

Definition under the Income Tax Act — the residential status

Under the Income Tax Act, 1961, tax liability in India is determined by the residential status of the individual, not by citizenship. The Act divides individuals into three categories:

• Resident.
• Not Ordinarily Resident (NOR).
• Non-Resident.

The determination is made for each financial year — from 1 April to 31 March — and the position can change from year to year.

Resident

Under Section 6(1) of the Income Tax Act, an individual is a resident in India in any previous year if they:

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

There are two important exceptions to the second limb:

• Indian citizens leaving India for employment. An Indian citizen who leaves India in any previous year for the purpose of employment outside India, or as a member of the crew of an Indian ship, is treated as resident only if they have been in India for 182 days or more in that year — the 60-day threshold does not apply.
• Indian citizens and persons of Indian origin visiting India. An Indian citizen or a person of Indian origin who is abroad, and who comes to India on a visit, is likewise treated as resident only if they have been in India for 182 days or more in that year.

With effect from the Finance Act, 2020, further rules apply:

• Deemed residence for Indian citizens earning over ₹15 lakh. An Indian citizen whose total income (other than foreign-source income) exceeds ₹15 lakh in the previous year is deemed to be resident in India if they are not liable to tax in any other country by reason of domicile, residence, or any other similar criterion.
• Deemed residence for Indian citizens visiting India. An Indian citizen who is not liable to tax in any other country, and who is present in India for 120 days or more in the previous year (and 365 days or more in the preceding four years), is deemed to be resident.

Non-Resident

An individual who does not satisfy either of the tests of residence under Section 6(1) is a Non-Resident for the previous year. Under Section 115C(e) of the Income Tax Act, a "Non-Resident Indian" means an individual who is a citizen of India and who is not a "resident" — that is, every Indian citizen who is not resident in India in any previous year is a Non-Resident Indian for the purposes of that provision.

The thresholds that apply, in summary, are these:

• General rule. If the individual's stay in India does not exceed 59 days in the financial year, they are a Non-Resident. (In practice the operative threshold is 60 days, for the reasons explained above — the 60-day rule applies to the second limb of the resident test.)
• Indian citizens leaving India for employment. If the stay does not exceed 181 days in the year of leaving India for employment outside India (Indian citizens only), the individual is a Non-Resident.
• Crew of an Indian ship. If the stay does not exceed 181 days in the year of leaving India as a member of the crew of an Indian ship (Indian citizens only), the individual is a Non-Resident.
• Visits to India. If the stay does not exceed 181 days during a visit to India (for Indian citizens and persons of Indian origin only), the individual is a Non-Resident.

Person of Indian Origin

For the purposes of the Income Tax Act, an individual of Indian origin who is not a citizen of India is also treated as a Non-Resident Indian.

A person is considered to be of Indian origin if they, or either of their parents, or any of their grandparents, were born in undivided India. The definition expressly excludes those born in the territories that now form Pakistan or Bangladesh.

Not Ordinarily Resident

An individual who is resident in India in any previous year may still be treated as Not Ordinarily Resident (NOR) — a category that sits between the resident and the non-resident, and that carries a more favourable tax treatment on foreign income.

A resident individual is treated as NOR if they satisfy either of the following tests:

• The individual has not been resident in India in nine of the ten preceding years; or
• The individual has not been in India for a period of 730 days or more during the preceding seven years.

The practical significance of NOR status is that foreign income earned in the following years — provided it is not derived from a business controlled in India or a profession set up in India — is exempt from Indian income tax, even if the individual is in India for all or most of the time, or has returned to India. It has been widely held that where a person qualifies as Non-Resident under the Income Tax Act for two successive years, they become eligible to be treated as NOR for the nine subsequent years.

Residence of entities — HUF, firm, company

The Act also defines the residential status of entities, and the rules differ from those for individuals:

• Hindu Undivided Family, firm, association of persons, body of individuals. Such an entity is resident in India in any previous year unless, during that year, the control and management of its affairs are situated wholly outside India. Even if only a part of the control and management is situated in India, the entity is treated as resident. A HUF is treated as NOR if its manager has not been resident in India in nine out of the ten preceding years and has not, during the seven preceding years, been in India for 730 days or more.
• Company. Under Section 6(3), a company is resident in India in any previous year if it is an Indian company, or if, during that year, the control and management of its affairs is situated wholly in India.

Why the two definitions matter

The distinction between the FEMA definition and the Income Tax Act definition is not an academic one. Different statutory regimes use different definitions, and a person who is a Non-Resident under one may not be a Non-Resident under the other:

• Property transactions. The acquisition, holding, and transfer of Indian immovable property by a Non-Resident is governed by FEMA and by the regulations made under it by the Reserve Bank of India. The NRI status for these purposes is the FEMA status, not the tax status.
• NRE, NRO, and FCNR accounts. The opening and operation of these accounts, and the repatriation rules that apply to each, are governed by FEMA.
• Tax liability. The question of what is taxable in India, and at what rate, is governed by the Income Tax Act and the residential status determined under it.
• Double taxation. Where the individual is resident in another country, the double tax avoidance agreement between India and that country may modify the position. The tax residence of the individual under that agreement is a separate question, governed by the agreement's own tie-breaker rules.
• OCI card. The Overseas Citizen of India card is a status distinct from NRI status under either FEMA or the Income Tax Act. An OCI cardholder is a foreign national; the NRI status is a separate determination. See our note on the OCI card for the position on that.

Where the difficulty usually arises

In our experience with NRI status matters, the points that most often cause difficulty are these:

• Assuming a single, uniform definition. An individual taking the position that they are "an NRI" without identifying which definition applies, and then finding that the position under the other definition is different.
• Counting days without considering intention. Under FEMA, the test is not merely the physical count of days. Intention matters, and the stated purpose of the stay abroad or in India is part of the test.
• The 182-day threshold. An individual assuming that any stay of more than 182 days makes them resident — without appreciating that the special rules for Indian citizens leaving for employment, and for Indian citizens and persons of Indian origin visiting India, apply.
• Deemed residence. An individual with income exceeding ₹15 lakh, or visiting India on a specific pattern, being unaware that the deemed-residence rules introduced by the Finance Act 2020 apply.
• NOR status. An individual assuming that once they return to India they are fully resident for tax purposes, without considering whether the NOR category applies — and thereby losing the benefit of the exemption on foreign income.
• Changing position from year to year. Treating the residential status as fixed, when in fact it is determined for each financial year separately and can change from one year to the next.
• Interaction with the foreign tax position. Being a Non-Resident in India does not determine the position in the country of residence. The tax position in the country of residence is a separate question, and the double tax avoidance agreement is the instrument that coordinates the two.

How Kavao Law can assist

We advise NRIs, foreign nationals, and their families on matters in which the residential status of the individual is material. Our work typically includes:

• Advising on the residential status of the individual under FEMA and under the Income Tax Act, and on the distinction between the two.
• Advising on the significance of NRI status for particular transactions — property purchases and sales, banking arrangements, repatriation of funds, and investments.
• Advising on the NOR category, and on the conditions under which an individual can claim NOR status on return to India.
• Advising on the OCI status and on the relationship between the OCI card and NRI status under FEMA and the Income Tax Act.
• Assisting with the documentation required to establish NRI status before banks, registrars, and other authorities in India.
• Coordinating with tax advisers on the interaction between the Indian residential status and the position in the country of residence, including under the applicable double tax avoidance agreement.

For more on our work in this area, see our OCI & Overseas Citizenship practice-area page and our note on NRE and NRO bank accounts.

A closing note

The information in this article is drawn from the Foreign Exchange Management Act, 1999, and the Income Tax Act, 1961, together with the amendments made by the Finance Act, 2020. It is general in nature and is intended to give readers a clearer sense of how the term "Non-Resident Indian" is defined, and of why a single definition does not exist.

Where a matter turns on the status of the individual — a property transaction, a banking arrangement, a repatriation question, or a tax filing — the relevant statutory definition should be identified first. The position under the other definition should be checked separately. And where the individual is also resident in another country, the double tax avoidance agreement between India and that country should be considered alongside the Indian statutory position.