NRI status & Taxable Income in India effective from FY2020-21

For non-resident Indians (Indian citizens or Persons of Indian Origin (‘PIO’) who have been residing outside India), until March 31, 2020, NRIs who visited India could stay in India up to 181 days in a financial year and still could maintain “Non-resident” status in India.

The Finance Act, 2020 and the Finance Act 2021 (assented by the President on 28 March 2021) have made far-reaching changes regarding the determination of the residential status of NRIs for the financial year ended March 31, 2021, and March 31, 2022. This change will directly impact the NRI community.

Highlights:-

⦁ Visiting NRIs whose total income (which is defined as taxable income) in India is up to Rs 15 lakh during the financial year will continue to remain NRIs if the stay does not exceed 181 days, as was the case earlier.

⦁ Dividends distributed by Indian companies would be taxable in the hands of the shareholders and as such, would form part of the taxable income. On the other hand, since interest on FCNR and NRE deposits are exempt it will not form a part of taxable income. This amendment is effective from the financial year 2020-21, viz. April 1, 2020, to March 31, 2021.

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⦁ An individual whose taxable income exceeds Rs 15 lakh and stays in India for 120 days or more (but less than 182 days) and is treated as a resident individual will still be treated as “Resident but Not Ordinarily Resident (RNOR)”. In the case of RNOR individuals, the foreign income (i.e., income accrued outside India) shall not be taxable in India. Foreign sources mean income that accrues or arises outside India (except income derived from a business controlled in or a profession set up in

Scope of taxation in India based on Residential Status