Guide to Income TAX rules for Non Resident Indians on Investments

Since the time the Government of India began reviewing its policies, thus attracting more and more non-residents to invest in the Real Estate segment, the Reserve Bank of India, in its mid-term economic policy for the year 2006-07:

  • Removed the lock-in period for the sale proceeds of property credited to NRO Accounts with a cap of US$ 1 mn.
  • Permitted the full repatriation of income from the rented property after payment of tax.
  • Extended tax exemptions from wealth tax on commercial and residential property for at least 300 days in a calendar year.

To protect its non-residents from paying double tax, the Indian Government has entered into Double Tax Avoidance Agreement (DTAA) with several countries where Indians reside in large numbers. DTAA has provided for tax to be deducted at source out of payments for Non-Resident Indians (NRI) and Persons of Indian Origin (PIO) thus assisting the process of assessment of taxes due from them.

The Income Tax Act 1961 (ITA 1961) defines how an individual residing in India is to be taxed depending on his residential status. The residential status is classified as:

Resident: An individual who stays in India, for a minimum of 182 days in a year ending 31st March; or for at least 60 days in a financial year ending 31st March; AND a total of 365 days in the preceding four years. This period of 60 days is extended to 182 days in case of –

  1. Indian Citizens who leave India for employment outside India
  2. Indian Citizens who are crew members of an Indian Ship
  3. Indian Citizen or PIO visiting India in any year

Ordinarily Resident (ROR): An individual, who is resident and ordinarily Indian, is taxed on the income she/he receives from India or is deemed to receive from the same in the relevant financial year.

[Note: For individuals in the two above-mentioned categories, global income is taxable in India]

Resident but Not Ordinarily Resident (RNOR): A RNOR is an individual who does not reside in India in nine out of ten years before the previous year, or a person who is residing in India for 729 days or less during the last seven years before the previous year. A RNOR is taxed on income accruing in India. S/he is not taxed on income generated from OUTSIDE India.

Non-Resident: Any individual who does not fall in the above-mentioned category is a Non-Resident (NRI). Such an individual is taxed on income received (or deemed to receive) or accruing (or deemed to accrue) from India in the relevant financial year.

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