An individual's residential status is determined solely for the Income-tax purpose. Residential status is a term coined under Income Tax Act and it has nothing to do with the nationality or domicile of an individual. An Indian, who is a citizen of India can be non-resident for Income-Tax purposes.
The Residential status of an individual depends on the territorial connections of the person with the country that is for how many days he had physically stayed in that country.
Let's see the requirements that an individual has to fulfill to be called as a Resident Indian.
Indian Resident For Income Tax Purpose
An individual is considered as an Indian resident for a financial year if he/she fulfills the below-mentioned requirements
• if an individual stays in India for at least six months (182 days to be exact) during the financial year
• if an individual resides in India for at least two months that is 60 days in the previous year and has lived for at least one year (365 days) in the last four years.
If an individual is an Indian citizen working abroad or a member of a crew on an Indian ship, only the first condition is applicable - which means you are considered as a resident of India, if you spend at least 182 days in India.
Difference Between NRI, PIO, and OCI
Now let's move on to understand the basic difference between NRI, PIO, and OCI.
Non-Resident Indian (NRI)
Non-resident Indian are also referred as Indian Diaspora, are the people of Indian birth or descent who live outside of the Republic of India.
As per the Ministry of External Affairs report, there are approximately 30.8 million Indian diasporas residing outside India.
Is an NRI's income earned abroad taxable in India?
A Non-Resident Indian's income tax primarily depends upon the residential status for the year. If an individual is a resident, then the global income earned by the individual is taxable in India. If in case, the individual's status is ‘NRI', then the income which is earned or accrued only in India is taxable.
The income earned may be in the form of salary received or earned in India, income from house property situated in India, capital gains on transfer of asset situated in India, income earned from fixed deposits or interest on the savings bank account, all these incomes are taxable for an NRI in India.
India has the highest diaspora population in the world with more than 15.6 million according to the United Nations Department of Economic and Social Affairs.
Income Tax Act considers an individual as a Non-resident Indian if he/she fulfills following requirements
'Non-Resident Indian' is an individual who is a citizen of India or a person of Indian origin and who is not a resident of India.
Thus, in order to determine whether an individual is a non-resident Indian or not, his residential status is required to be determined under Section 6.
As per Section 6 of the Income-tax Act, an individual is said to be non-resident in India if he is not a resident in India and an individual is deemed to be resident in India in any previous year if he satisfies any of the following conditions:
1. If he is in India for a period of 182 days or more during the previous year
2. If he is in India for a period of 60 days or more during the previous year and 365 days or more during four years immediately preceding the previous year.
However, condition No. 2 does not apply where an individual being citizen of India or a person of Indian origin, who being outside India, comes on a visit to India during the previous year.
A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grandparents, was born in undivided India.
Income exempt from tax
Following incomes are exempt from tax in the hands of a Non-resident Indian (NRI)
• Interest on notified savings certificates issued before June 1, 2002, by the Central Government if it is subscribed in convertible foreign exchange remitted from a country outside India [section 10(4B)]
• Interest on notified bonds (notified prior to June 1, 2002) purchased in foreign exchange (subject to certain conditions) [section 10(15)(iiad)].
Person of Indian Origin (PIO)
The Person of Indian Origin (PIO) are also called as Overseas Indians. They are individuals who are Indians at birth or descent of Indian origin who live outside of the Republic of India.
The Persons of Indian Origin means a foreign citizen (except a national of Pakistan, Afghanistan, Bangladesh, China, Iran, Bhutan, Sri Lanka and/or Nepal), who
• at any time held an Indian passport
• either of their parents or grandparents or great-grandparents were born and permanently resident in India as defined in Government of India Act, 1935 and other territories that became part of India thereafter provided neither was at any time a citizen of any of the aforesaid countries (as referred above)
• is a spouse of a citizen of India or a PIO
The Persons of Indian Origin Card was a form of an identification card issued to the Person of Indian Origin who held a passport in a country other than Bangladesh, China, Afghanistan, Bhutan, Nepal, Pakistan and Sri Lanka.
The PIO Card programme came into effect on September 15, 2002.
On January 15, 2015, the Person of Indian Origin card scheme was withdrawn by the Government of India and it was merged with the Overseas Citizen of India (OCI) card scheme.
Currently, all the PIO cards are treated as OCI cards. PIO card holders will get a special stamp on their existing PIO card, stating "lifelong validity" and "registration not required", thus making them equal to the existing OCI cards.
PIO card-holders were given an extended deadline to convert their card to OCI, free of cost before June 30, 2017.
Benefits To PIO Cardholders
The various benefits available to PIO cardholders were:
• Visa-free entry into India during the period of validity of PIO Card.
• Exemption from the requirement of registration if there stay in India does not exceed six months. Should the continuous stay exceed six months, then registration is not required even if their visit exceeds 180 days.
• Parity with non-resident Indians in respect of facilities available to the latter in economic, financial and educational fields.
• All facilities in the matter of acquisition, holding, transfer, and disposal of immovable properties in India except in matters relating to the acquisition of agricultural/plantation properties.
• Facilities available to children of Non-Resident Indians for getting admission to educational institutions in India including medical colleges, engineering colleges, Institutes of Technology, Institutes of Management etc. under the general categories.
• Facilities available under the various housing schemes offered by the LIC, State Governments, and other Government agencies.
Drawbacks for PIO Card Holders
• Persons with PIOs were not eligible to vote
• Individuals with PIOs were not eligible for an Inner Line Permit. They had to apply for a Protected area permit.
Overseas Citizenship of India
The Overseas Citizenship of India (OCI) is an immigration status authorized for a foreign citizen of Indian origin to live and work in the Republic of India indefinitely.
The OCI was introduced in response to demands for dual citizenship by the Indian diaspora, particularly in developed countries.
It was introduced by the Citizenship (Amendment) Act 2005 in August 2005. It was launched during the Pravasi Bharatiya Divas convention held at Hyderabad in 2006.
Overseas Citizenship of India
To apply for and use an OCI document, a holder must be a citizen of and hold a passport of another country, except that of Pakistan and Bangladesh.
Before February 2015, passengers holding OCI card were required to carry the passport which contained the lifetime visa while traveling to India. This requirement was done away with during 2015, and now the OCI card holders no longer require the visa sticker passport.
The OCI card (the blue booklet) in conjunction with a current valid foreign passport is sufficient to travel to and from India.
Benefits For OCI Card Holder
Overseas Citizenship of India allows a holder:
• Multiple-entry, multi-purpose lifelong visa to visit India
• Exemption from foreigner registration requirements for any length of stay in India and
• Parity with non-resident Indians in financial, economic and educational fields except in the acquisition of agricultural or plantation properties.
Drawbacks of OCI Card Holders
Overseas citizens of India are not citizens of India from a constitutional point of view and will not enjoy the following rights even if they are residents in India
• The right to vote
• The right to hold the offices of President, Vice-President, Judge of Supreme Court and High Court, Member of Lok Sabha, Rajya Sabha, Legislative Assembly or Council
• Appointment to Public Services (Government Service).