people move abroad for work. a friend says “you are an nri now.” a ca says “your residency status changed.” a bank says “update your address or tds will be higher.”
everyone uses different words. nri. resident. non resident. rnor.
they are not the same.
here is what each one means. and why it matters for taxes.
first. what is an nri. not every indian abroad.
nri stands for non-resident indian.
but here is the catch. the income tax department does not use the word nri. that word comes from fema. foreign exchange management act.
for taxes, an individual is either resident or non resident. not nri.
| status | who decides |
meaning |
| nri | fema (rbi) | indian citizen living abroad |
| resident | income tax act | stays in india enough days |
| non resident | income tax act | does not meet residency tests |
an nri for banking purposes can be a resident for tax purposes. example. someone lives in dubai for 10 months but comes back to india for 3 months every year. bank says nri. tax department may say resident.
confusing. yes.
how the tax department decides residency
for taxes, only the days spent in india matter. not passport. not visa. not bank status.
two tests.
test one. in india for 182 days or more in a financial year. resident.
test two. in india for 60 days or more in the financial year. and 365 days or more in the last 4 years combined. resident.
exception. indian citizens leaving india for work. or crew on an indian ship. the 60 days becomes 182 days.
if both tests are failed. the individual is a non resident for tax purposes.
the three tax residency statuses
|
status |
who |
taxed on |
| resident and ordinarily resident (ror) | most people living in india | global income. everything. |
| resident but not ordinarily resident (rnor) | nris who just returned or travel often | india sourced income only |
| non resident (nr) | living abroad most of the year | only india sourced income |
ror pays tax on salary from dubai. rental income from london. capital gains from new york. everything.
nr pays tax only on income that comes from india. salary paid in india. rent from a tenant in mumbai. interest from an indian bank account.
rnor is a transition status. usually 2-3 years after returning to india. foreign income gets relief during this time.
what changes when someone becomes nri for banking
the bank account changes. resident savings account becomes nro or nre account.
nre account. non resident external. money from abroad. repatriable back abroad. no tax in india on interest.
nro account. non resident ordinary. money earned in india. rent. pension. interest. tax applies in india.
fcnr account. foreign currency non resident. fixed deposit in foreign currency. no currency risk.
if bank status is nri but tax status is resident, interest from nre account becomes taxable in india. that catches many people.
how tds changes for nris
higher tds rates apply for nris.
|
income type |
resident tds |
nri tds |
| fixed deposit interest | 10% (above ₹40,000) | 30% |
| rental income | 10% (above ₹2.4 lakh) | 30% |
| long term capital gains (stocks) | 10% (above ₹1.25 lakh) | 10% (no exemption) |
| short term capital gains | 15% | 15% |
nris do not get the basic exemption limit of ₹2.5 lakh or ₹3 lakh on capital gains. every rupee of gain is taxed.
also, nris cannot file itr-1. must file itr-2 or itr-3.
common mistakes nris make
one. not converting bank account. resident account continues. tds deducted at lower rate. notice comes later.
two. filing itr-1. wrong form. return becomes defective. penalty applies.
three. ignoring foreign assets in itr. schedule fa is mandatory. even zero balance accounts. even accounts with no interest. penalty for not reporting is ₹10 lakh.
four. assuming nri means no tax in india. if there is indian income, filing is required. if tds is cut, a refund may be needed.
five. missing the rnor window. when returning to india, 2-3 years of rnor status are available. foreign income not taxable. plan before this window closes.
FAQs
1. can someone be nri for banking but resident for taxes ?
A. yes. happens often. bank status is based on current location. tax status is based on days in india. different rules.
2. do nris pay tax on foreign salary in india ?
A. no. nr is taxed only on india sourced income. foreign salary is not india sourced.
3. what itr form should an nri file ?
A. itr-2 or itr-3. not itr-1. not itr-4.
4. is nre account interest taxable in india ?
A. no. nre interest is tax free in india. but must be reported in itr.
5. how long does rnor status last after returning to india ?
A. maximum 3 years. ror status applies when someone has been in india for 2 years out of 3. or 3 years out of 4. plan accordingly.
