The Non-Resident Indian (NRI) is a legal concept central to India's tax and foreign exchange regulations, not an institution or scheme. Its origin is rooted in the need for foreign exchange control, with the status being determined under two key laws: the Income Tax Act, 1961 and the Foreign Exchange Management Act (FEMA), 1999.
Under the Income Tax Act, 1961, an individual is an NRI if they do not meet the criteria for being a "resident" under Section 6. The primary mechanism for determining residency is based on the number of days spent in India; generally, an individual is a resident if they are in India for 182 days or more in the financial year. NRIs are typically only liable to pay tax on their Indian-sourced income.
For foreign exchange purposes, the concept connects to the FEMA, 1999, where an NRI is generally equated with a "person resident outside India," defined in Section 2(w) as a person who is not a resident. The residential status under FEMA is distinct from the Income Tax Act and is crucial for regulating cross-border transactions.
The concept has changed recently through the Finance Act, 2020, effective from Assessment Year 2021-22. This amendment to Section 6(1) introduced a lower threshold of 120 days (instead of the standard 182 days) for an Indian citizen or Person of Indian Origin visiting India, if their total income (excluding foreign sources) exceeds ₹15 lakh. Furthermore, Section 6(1A) introduced a "deemed resident" provision for Indian citizens with income over ₹15 lakh who are not liable to tax in any other country.