You are considered an Indian resident for a financial year if you satisfy any of the conditions below:

1. When you are in India for at least 6 months (182 days to be exact) during the financial year
2. You have been in India for 2 months (60 days) in the previous year and have lived for one whole year (365 days) in the last four years.

Note: If you are an Indian citizen working abroad or a crew member on an Indian ship, only the first condition is available to you – which means you are a resident when you spend at least 182 days in India.

The same applies to a Person of Indian Origin (PIO) who visits India. The second condition does not apply to these individuals. A PIO is a person whose parents or any of his grandparents were born in undivided India.  

If you do not meet any of the above conditions, you are a Non-Resident Indian. 

Resident but Not-Ordinary Resident (RNOR) definition amended

Individuals will be considered as RNOR for the year if they meet the following conditions:

• If you’ve been a non-resident in India for 9 years out of 10 previous years preceding the year of consideration, or
• If you have stayed in India for 729 days or less during 7 previous years preceding the year of consideration
• Total income other than foreign income is Rs 15 lakh or more,
• The individual has stayed in India for more than 120 days but less than 182 days in the previous year, or
• The individual has stayed in India for 365 days or more in four years preceding the previous year

Before this amendment, such individuals were classified as non-residents. Due to the amendment mentioned above, the individual’s residential status may be classified as RNOR, which will lead to loss of DTAA benefits, increased scope of total income for taxability, loss of various exemptions allowed, etc.

It is to be further noted that in the above amendment, an individual staying for more than 182 days shall be classified as a resident irrespective of the level of income in the previous year.

Deemed residency status introduced in Finance Act 2020

Finance Act 2020 introduced the concept of ‘Deemed residency’. According to this, Citizens of India earning more than Rs 15 lakh from Indian sources shall be deemed a resident of India if they are not liable for payment of taxes in any other country.

The deemed residents shall be classified as RNOR with effect from the financial year 2020-21. This amendment was brought in force to tax the incomes of the Indian citizens who are not liable to pay tax in any country.

If you are NRI or not, any individual whose income exceeds Rs 2,50,000 is required to file an income tax return in India.

If NRIs tax liability exceeds Rs. 10,000 in a financial year, they must pay advance tax. Interest under Section 234B and Section 234C is applicable if advance tax is not paid.

Similar to residents, NRIs are also entitled to claim various deductions and exemptions from their total income. These have been discussed here:

Deductions under Section 80C

Most of the deductions under Section 80 are also available to NRIs. For FY 2020-21, a maximum deduction of up to Rs 1.5 lakh is allowed under Section 80C from gross total income for an individual.

Of the deductions under Section 80C, those allowed to NRIs are:

1. Life insurance premium payment: The policy must be in the NRI’s name or in the name of their spouse or any child’s name (child may be dependent/independent, minor/major, or married/unmarried). The premium must be less than 10% of the sum assured.
2. Children’s tuition fee payment:Tuition fees paid to any school, college, university or other educational institution situated within India for full-time education of any two children (including payments for play school, pre-nursery and nursery).

iii. Principal repayments on loan to purchase house property: Deduction is allowed to repay the loan taken for buying or constructing residential house property. The deduction is also allowed for stamp duty, registration fees and other expenses to transfer such property to the NRI.

1. Unit-Linked Insurance Plan (ULIP):ULIP is sold with life insurance cover for deduction under Section 80C. It Includes contribution to the unit-linked insurance plan of LIC mutual fund, e.g. Dhanraksha 1989 and contribution to other units-linked insurance plans of UTI.
2. Investments in ELSS:ELSS has been the most preferred option in recent years as it allows you to claim a deduction under Section 80C up to Rs 1.5 lakh, it offers the EEE (Exempt-Exempt-Exempt) benefit to taxpayers and simultaneously offers an excellent opportunity to earn as these funds invest primarily in the equity market in a diversified manner.

Other allowable deductions

Besides the deduction that an NRI can claim under Section 80C, they are also eligible to claim various other deductions under the income tax laws, which have been discussed here:

Deduction from house property income for NRIs

NRIs can claim all the deductions available to a resident, including parents’ insurance deductions from income from house property for a house property purchased in India. Deduction towards property tax paid and interest on home loan deduction is also allowed.

Deduction under Section 80D

NRIs are allowed to claim a deduction for the premium paid for health insurance. This deduction is available up to Rs 25,000 in the case for insurance of self, spouse, and dependent children and up to Rs 50,000 for senior citizens. Additionally, an NRI can also claim a deduction for parents’ insurance (father or mother or both) up to Rs 50,000 if their parents are senior citizens and Rs 25,000 if the parents are not senior citizens.

Within the existing limits allowed, a deduction of up to Rs 5,000 for preventive health check-ups are also available.

Deduction under Section 80E

Under this section, NRIs can claim a deduction of interest paid on an education loan.

This loan may have been taken for higher education for the NRI, NRI’s spouse, children, or a student for whom the NRI is a legal guardian.

There is no limit on the amount which can be claimed as a deduction under this section. The deduction is available for a maximum of eight years or till the interest is paid, whichever is earlier. The deduction is not available on the principal repayment of the loan.

Deduction under Section 80G

NRIs are allowed to claim a deduction for donations for social causes under Section 80G. 

Deduction under Section 80TTA

Non-resident Indians can claim a deduction on income from interest on savings bank accounts up to a maximum of Rs 10,000 like resident Indians.

This is allowed on deposits in savings accounts (not time deposits) with a bank, co-operative society or post office and is available starting FY 2012-13.

Deductions not allowed to NRIs

Some investments under Section 80C:

• Investment in PPF is not allowed (NRIs are not allowed to open new PPF accounts. However, PPF accounts that are opened while they are a resident are allowed to be maintained)
• Investments in National Savings Certificates (NSCs)
• Post office 5-year deposit scheme
• Senior Citizen Savings Scheme (SCSS)

Deduction for the differently-abled under Section 80DD

Deduction under this section is for maintenance, including medical treatment, of a handicapped dependent (a person with a disability as defined in this section). Such deduction is not available to NRIs.

Deduction for the differently-abled under Section 80DDB

Deduction under this section towards medical treatment of a dependent who is disabled (as certified by a prescribed specialist) is available only to residents.

Deduction for the differently-abled under Section 80U

Deduction for disability where the taxpayer himself has a disability as defined in the section is allowed only to resident Indians.

Exemption on sale of property for an NRI

Long-term capital gains are taxed at 20%. Do note that long-term capital gains earned by NRIs are subject to a TDS of 20%.

NRIs can claim exemptions under Section 54, Section 54 EC, and Section 54F on long-term capital gains. Therefore, an NRI can take benefit of the exemptions from capital gains when filing a return and claim a refund of TDS deducted on Capital Gains.

Exemption under Section 54 is available on long-term capital gains on the sale of a house property. Exemption under Section 54F is available on the sale of any asset other than a house property. 

The exemption is also available under Section 54EC when capital gains from the first property sale are reinvested into specific bonds.

• Suppose you are not very keen to reinvest your profit from the sale of your first property into another one. In that case, you can invest them in bonds for up to Rs 50 lakh issued by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC).
• The homeowner has 6 months to invest the profit in these bonds, although to be able to claim this exemption, the investment should be
• before the tax filing deadline.
• The money invested can be redeemed after 3 years but cannot be sold before the lapse of 5 years from the date of sale. With effect from the FY 2018-2019, the period of 3 years has been increased to 5 years.
• With effect from FY 2018-19, the exemption under Section 54EC has been restricted to the capital gain arising from the transfer of long term capital assets being land and building or both. Earlier, the exemption was available on transfer on any capital assets. The NRI must make these investments and show relevant proof to the buyer to get no TDS deducted on the capital gains. The NRI can also claim a refund of excess TDS deducted at the time of return.