Introduction

As the most populous country in the world, Indians are found everywhere across the globe, whether as residents, Non-resident Indians, Overseas Citizens of India (OCI), or Persons of Indian Origin (PIO). Today, we are going to talk about non-resident Indians (NRIs), who make up a whopping 3 Crores in number. As per the definition, any Indian who spends more than 182 days overseas for employment or business-related reasons during a fiscal year is considered an NRI. Even though they are separated by boundaries and locations, the NRI community is closely connected to their roots.

Begin Investing with an NRI Demat Account

Let’s first start by understanding the difference between NRIs and other types of Indian people living abroad.

Different Residency Status in India

Your residence status in India is based on the number of days you spend in the country during the April–March fiscal year, not your nationality. The Income Tax Act of 1961 provides explicit instructions:

Resident Indian (RI)

You qualify as a Resident if you are present in India for 182 days or more within the financial year, OR if you are in India for 60 days during that year and have spent 365 days in the previous four years combined.

Non-Resident Indian (NRI)

If you don't satisfy the aforementioned criteria, you will be classified as an NRI. To put it differently, NRIs are individuals of Indian nationality residing outside India for reasons such as work, business, education, or various other activities.

OCI (Overseas Citizen of India)

The government acknowledges OCI as a unique classification that provides lifelong visa and residency rights, without complete citizenship advantages.

Key Difference Between NRI and OCI

Rules and Regulations

As a citizen of India, there are certain rules and regulations that apply to you, which can be different from those applicable to resident Indians. Let’s explore the rules and regulations.

Taxation Rules

NRIs have different tax rules compared to resident Indians. Here is what you need to know as an NRI

Taxable income

• NRIs get taxed only on the income generated in India. This includes sources such as rental income from properties, dividends received, pension payments, and capital gains generated from investments.

• Interest accrued on NRO accounts.

• Any income from outside of India is not subject to taxation in India.

Tax-free sources

• Interest accrued on NRE and FCNR accounts is not taxed.

• There are certain exemptions available under Double Taxation Avoidance Agreements (DTAs).

Tax Deducted at Source

• A majority of income sources for NRIs, such as rental income, NRO interest, or capital gains, are liable for Tax Deducted at Source (TDS) at defined rates.

Repatriation Rules

Repatriation is the process of sending money outside India. The RBI has the following rules:

• Principal and interest are completely repatriable from NRE and FCNR accounts.

• Only the interest can be freely repatriated from an NRO account. Depending on taxes and documents, the principal may be repatriated up to USD 1 million each fiscal year.

• Funds from the sale of real estate in India may be repatriated, although there are restrictions based on whether the property was bought or inherited.

Other Rules and Benefits

Voting Rights

NRIs can vote in Indian elections as long as they are physically present to vote.

Banking

NRIs cannot have savings accounts in India. They can get NRE, NRO, or FCNR accounts depending on where their funds come from.

Investment

NRI’s investments are regulated under Foreign Exchange Management Act (FEMA) and can invest in Indian equities, mutual funds, and real estate (except agricultural property).

Insurance

NRIs can obtain and keep life insurance plans in India, even after migrating overseas.

Conclusion

As an NRI with significant financial links to India through investments, family, and real estate, you are bestowed specific rights. Understanding tax, repatriation, and accounts legislation allows you to know your rights and make sound judgments.

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