Understanding your NRI status and Its impact

The complete form of NRI is Non-Resident Indian. Understanding the meaning of NRI is essential, as this term can change everything from lifestyle to taxes and investments. As an NRI, you have exclusive access to a special NRI bank account that will help you save, invest, and earn effectively in India. 

In this blog, we will discuss how being an NRI impacts your financial planning, what the benefits of being an NRI are, and lastly, what the tax implications of being an NRI are. 

Who is an NRI?

An NRI is a non-resident Indian, meaning a citizen of India who lives outside the country for more than 182 days in a financial year. This classification is essential for investment, banking, and tax purposes. However, as an NRI, you maintain your Indian citizenship and also retain your voting rights as an Indian citizen. Still, your global income and investments might be subject to Indian income tax laws and regulations. 

Who is considered an NRI?

An individual must meet the following eligibility criteria to be considered an NRI. 

Duration of stay abroad: An individual must reside outisde indian for more than 182 days in a financial year. 

Purpose of stay: The reason for staying abroad can be for anything, be it education, business, employment, or any other legitimate purpose. 

Intention to stay in a foreign land: An individual's intention to stay abroad for an uncertain period is also classified as an NRI. 

However, please note that if the individuals are staying abroad for a short duration or on holiday, they are not considered NRIs. 

Benefits for NRIs

Being an NRI comes with an array of benefits. Out of many, a few are mentioned as follows. 

Tax-free interest on NRE Account: As an NRI, you can open a Non-resident external (NRE) account to park your foreign earnings in India. The interest earned on this account is entirely tax-free, and both the principal and the interest are fully repatriable. 

Double taxation avoidance agreement: Thanks to the government of India, which has signed a Double Taxation Avoidance Agreement (DTAA) with more than 90 countries, including the USA, Canada, the UK, Australia, and other European nations. Because of these agreements, NRIs aren't taxed twice on the same income in their home country and in India, helping them either eliminate or reduce the tax burden. 

Investment Opportunities: Even though you are an NRI, you still have access to a wide range of investment opportunities in India. These opportunities include investments in real estate, government bonds, share market, mutual funds, nd more. 

Property Ownership: As an NRI, you can own property in India. However, there are certain restrictions to it, meaning you cannot purchase a plantation, agricultural land, or a farmhouse. With India's economy booming, property ownership is a valuable asset for generating good rental income. 

Financial Repatriation: NRIs can easily repatriate their funds from India to their country of residence using the correct NRI account. 

Disadvantages of being an NRI

As it's said, every coin has two sides. Similarly, while there are many advantages to being an NRI, there are also disadvantages. 

Restrictions on investment schemes: As an indian citizen living abroad, you are restricted from opening new accounts in India in some of the popular investment schemes, such as the public provident funds or the National Savings Certificate (NSC). However, if you had an account in these restrictive schemes before becoming an NRI, you can continue with them until maturity. 

Complex regulations: As an NRI, you have to handle the regulatory requirements of both your country of residence and India, and this navigation can be tedious at times, especially when it's about filing NRI income taxes and managing dual residency complexities.

Currency Risk: NRIs residing outside India often struggle with currency fluctuations, which can affect the value of their Indian remittances and investments. 

Financial & tax implications for NRIs

The following are the financial and tax implications for NRIs:

Salary Income: If an NRI has provided services in India and the salary is received directly into an Indian bank account, the income becomes taxable in India. However, if the salary is credited to an NRE account, then it's not taxable. 

Income from the house property: Any income that is generated through a property owned by an NRI in India is taxable. For example, rental income; however, you can claim an eligible tax exemption under Section 54EC, Section 54, and Section 54F for long-term capital gains. 

Income generated from capital gains: As an NRI, if you have earned any profits from the sale of assets in India, then that income is subject to capital gains. However, you can claim an eligible standard deduction under section 54 of the Income Tax Act on these gains. 

Income from business/profession: As an NRI, if you earn any income from a profession or business in India, the tax treatment is the same as that of residents. 

Income from other sources: Any interest earned on a savings account or fixed deposit in India is taxable. However, interest earned on NRE and FCNR accounts is tax-free. 

Conclusion

As an NRI, it is essential to understand all the obligations associated with your NRI status to manage the legal and financial responsibilities across borders effectively. Having the proper knowledge about your financial and tax implications as an NRI is important because you never know what tax exemption you might be missing or maybe making errors while filing the ITR. 

Understanding cross-border implications is a tedious task, and we are here to make it easy for you. Savetaxs has been helping NRIs across 90+ countries file their ITRs across borders and manage their investments, finances, and other implications effectively. 

Our experts bring 30+ years of combined experience in NRI taxation and compliance, ensuring your financial interests are well-represented. 

Connect with us today as we serve our clients 24/7 across all time zones.