NRIsTax Planning - Residential Status of Returning Indians (Part 2)

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It’s very important that returning non-resident Indians (NRIs) know the tax implications in advance before their arrival in India so as to better plan their tax affairs.

In continuation of part 1: NRIs Tax Planning – Residential Status, this post will explain how to maintain your NRI status even after coming back to India and how to minimize your tax liability even after losing your NRI tag for a particular financial year (FY) under Indian Income Tax Act, 1961.

Residential Status: Year of your final return to India
To maintain your NRI status (under tax laws) in the year of your final return to India, you’ve to ensure that

i). Your stay in India during the financial year (FY) of your return is less than 60 days, or,
ii). If your stay in India during the FY of your return is exceeding 60 days but is less than 182 days, then further your total stay during last 4 FYs doesn’t exceed 364 days.

Once your stay in India during the FY of your return exceeds 181 days, you lose the status of non-resident.

So if you’re a returning NRI, ensure that you return to India on or after 1st Feb (Feb 2nd in case of a leap year) of a FY so as no to lose your non-resident status. However, if your aggregate stay in India during 4 preceding financial years doesn’t exceed 364 days, then you may return to India anytime after September 30th of the relevant year without losing your non-resident status under IT Act.

For example, if you’re planning to return back to India during current financial year (i.e., 2009-10), the day of your arrival in India should depend upon your total stay in India during last 4 financial years (i.e., FY 2005-06 to FY 2008-09). If it exceeds 364 days, you should arrive only in the month of February or March 2010 and if it doesn’t exceed 364 days, then you can arrive here anytime from October 2009 onwards.


Another Escape route after becoming resident in India
However, even if you lose your NRI status under the IT Act during a particular FY, there’s nothing to worry about. In such cases, Indian IT Act provides you another escape route to avoid paying tax on your foreign income.

[Note: The following discussion is not relevant for those returning NRIs who won’t have any foreign income after their arrival in India.]

If you’re not a ‘non-resident’ (NR), means that you’re a resident in India for tax purposes. Now, resident tax payers are further divided into two sub-categories: ‘resident and ordinarily resident’ (ROR) and ‘resident but not ordinarily resident’ (NROR).

According to the Income Tax Act, 1961, once an individual becomes a resident in India during a particular financial year due to his/her crossing the threshold limit of physical stay (as discussed in the previous post: NRIs Residential Status - Part I) he further needs to determine whether he would qualify as resident and ordinary resident (ROR) or resident but not ordinary resident (RNOR) based on his residential status of past 10 years.

How to determine whether you’re ‘ordinary resident’ or ‘not-ordinary resident’?
To acquire the status of ‘resident but not ordinary resident’ for a particular FY under Income Tax Act, 1961, you’ve to make sure that you satisfy either or both of the following two conditions as laid down in section 6(6)(a):

a). You’ve been ‘non-resident’ in India in 9 out of 10 FYs immediately preceding the relevant FY.

b). Your total period of your stay in India during the 7FYs immediately preceding the relevant FY is less than 730 days.

In other words, if you qualify as a resident in India for at least 2 out of 10 FY preceding the relevant FY AND you’ve been in India for at least 730 days during 7 years preceding the relevant FY, then you become a ‘resident and ordinarily resident’ (ROR) in India and there is no escape from paying taxes on your foreign income.

Usually, an NRI coming back to India after a decade long overseas stint will qualify as ROR only in the third year. In other words, a returning Indian who has been a Non Resident in India for 9 years or more (during past 10 years preceding the relevant FY), then for 2 successive years he shall be a resident but not ordinary resident (RNOR).


But what’s the significance of this distinction between ‘ordinary residents’ and ‘not-ordinary residents’?
While in the hands of ‘ordinary residents’ in India, the entire world income is taxable, the foreign income of ‘non-ordinary residents’ is taxable only if it is

i). Business income and business is controlled from India, or
ii). Professional income from a profession set up in India.

Rest all kinds of foreign income is exempt in the hands of ‘not-ordinary residents’ in India similar to exemption provided to non-residents. Put another way, impact of being ‘resident but not ordinarily resident’ in India for tax purposes means that all your passive foreign income (income earned on overseas assets)such as interest, dividend, rent etc. would not be taxable in India (except business or professional income as specified above).

Any questions?


Also see:

1. NRI Tax Planning: An Introduction

2. Difference between NRE & NRO Bank Accounts

3. Starting a Consulting Business in India: Issues Involved

4. 5 Common Stock Investing Mistakes

Top 5 Stock Investing Mistakes

Photo by Christopher Chan

Investing is a continuous learning process. No investor has ever become successful without making mistakes. There is nothing wrong in making mistakes. What matters is our ability to learn from our mistakes so as to avoid repeating them. But this is easier said than done.

This post talks about the oft-repeated and fatal investing mistakes made by majority of investors:

5 Top Stock Investing Mistakes / Pitfalls

1. Having no investment strategy
If you don’t know where you’re going, no road will take you there.

Investing in an ad-hoc manner is the biggest blunder committed by investors. Having a casual approach towards investments is a sure recipe for failure in the financial markets.

What are you investing for? Why are you investing? If you’re not clear about your objectives behind investing in the markets, if you don’t know whether you’re an investor or a trader, if you’ve no idea whether you want to invest for the short term or the long term, then you are doomed to fail from the start.

And, it becomes really dangerous when you start gambling or speculating in the name of stock investing.

But despite not understanding the basics of stock investing, why does every Tom, Dick and Harry fall prey to its deceptive charm? To know why, see this article by Jagoinvestor: Why stock investing seems so easy?

The second important reason is that stock trading gives you a high feeling similar to the “high” experienced by drug addicts.


2. Too high expectations
Don’t you look at the pink papers daily to see how your stock is performing? Don’t you expect to double your money in a short period of time? It’s down right foolish to expect high returns year on year without any intervening bad periods.

Stock investing is all about patience. Growth is never linear. Also, over a long period of time, returns have a tendency to revert towards mean (mean reversion).

To meet our unrealistic expectations, we take unnecessary risk. There are no free lunches. Excess returns require excess risk which is not good for financial health.


3. Wrong buy/sell timings
The way we buy stocks is really amazing and defies all logic. When we go shopping for a TV or a cell phone, we go to great lengths to find a good bargain. But when it comes to investing, we invariably choose wrong time to enter and exit. We buy when the markets are at the peak (greed) and sell when the markets crash (fear) whereas it should be the other way round.

Most of the investors buy when the markets are overheated and sell when the markets are in panic. But why do the same investor who is not willing to buy a stock when it is quoting at a P/E (price-to-earnings) multiple of 2-5 suddenly changes his mind and ready to buy after the 10 times increase in the price? Why do we are ever ready to buy stocks at more than there intrinsic worth?

Stock markets are perhaps the only market where demand increases at higher prices because we believe that there will always be a greater fool (than us) sitting out there who will be ready to buy it from us .

For example, when the Sensex bottomed out at around 8,000 during November 2008 to mid March 2009, there were no buyers. Now when the stock valuations at current level look stretched and have become historically expensive (Sensex has more than doubled during last six months and is nearing 17000), retail investors are again back.

Note: Yesterday (22 September, 2009), Bombay Stock Exchange (BSE) Sensitive Index, Sensex closed at 16886.43 with a P/E of 21.86 and the National Stock Exchange (NSE) index, Nifty zoomed past the 5,000-mark for the first time in 16 months.


4. Hesitation in booking Losses
Suppose you buy two stocks A and B for Rs 1000/- each. A rises to 2000/- while B drops to Rs. 500/-. Which stock would you sell?

Don’t you prefer to sell those shares which make a profit while continuing to held on to loss making shares?

Put another way, investors tend to hold onto their losses too long while holding onto their gains too short. But why do investors generally retain their losing investments longer than they hold on to winning investments?

Behavioural Finance says that there are 4 basic reasons behind this irrational behavior:

i) Regret avoidance: Investors avoid selling stocks that have gone down in order to avoid the pain and regret of having made a bad investment decision. We are reluctant to acknowledge our losses to avoid the stress associated with admitting a mistake and because it hurts our ego.

People are afraid to admit an error in judgment and are thus more likely to sell winners in their portfolios than losers.

ii) Mental Accounting: Mental accounting predicts that people will hold onto losing stocks because closing an account at a loss is painful; realized loss is more painful than the paper loss.

iii) Anchoring: It means to wait for investments to break-even at a price at which it was purchased.

iv) Disposition effect / Loss aversion: Our tendency to avoid loss than to profit from gains because psychological losses are twice as powerful as gains.

5. Use of borrowed funds to invest (Leveraging)
Investors do leveraging (which is a two way sword) either by investing borrowed money or by investing in derivatives (futures and options).

But what is leveraging and how is it a dangerous weapon in the hands of investors?

Borrowing money (e.g., personal loans, loan against shares, IPO financing, margin trading) to make more money is really seems an attractive proposition. Investing with borrowed funds helps you make profit much more than otherwise, but it’s extremely dangerous. When the market is rallying, the return on your funds gets magnified (due to leveraging) even after meeting the interest cost. However, in case of a market fall, there can be complete wipe out of your money.Put simply, leveraged investing (use of borrowed funds to invest) magnifies both potential gains as well as potential losses relative to the performance of the investments. Let’s see how:

Suppose Rs 100 is invested (which includes borrowing of Rs 50 @ say, 12% rate of interest). If the return on investment is, say, 20%, then the net return earned on own funds become 28% after paying interest cost. However, if instead of 20%, overall return is say nil (market remains at the same levels) then the net return on own funds becomes -12%. Further suppose that market tumbles and overall return on the funds invested is -20% , then after meeting the fixed interest cost, the net return on own funds invested works out to be -52%.What? How come? What’s the reason behind such an amplification of loss? It is because regardless of investment performance (i.e., inspite of negative returns or the investment becoming worthless), the loan principal and the accrued interest thereon still needs to be repaid.

Put another way, use of borrowed funds to invest is a speculative and risky adventure similar to gambling.

Similarly, using the derivatives (Options and Futures) route to invest (instead of cash segment) can be very dangerous.

I hope you enjoyed reading this post. As always, you’re welcome to post your questions or comments.


Also see:

1. Mutual Funds vs. Direct Stock Investing

2. PPF Interest Calculator

How to Simplify Your Life

Photo by mrcharly

The pursuit of material comforts does not always lead to happiness.

As already mentioned in the welcome message, 'The Money Quest’ blog is not only about pursuit of money but also about how to strike a balance between your money and your life. It’s already one year since we started on this money and life quest but there is no talk about the life part. So, starting with this post, I’ll also write about how to live a simple, conscious, purposeful and balanced life.

Simplifying your life is about eliminating waste: Wasteful activities, wasteful thoughts, and wasteful stuff. In order to simplify your life, you’ve to

1. Make certain lifestyle and attitudinal Changes
2. Eliminate certain wasteful Activities
3. Adopt certain productive activities / routines

In this post I’m going to discuss how to make a few simple changes in your lifestyle and attitude towards life.

5 Simple Lifestyle and Attitudinal Changes
Here‘s a list of 5 easy ways / tips to make your life simple and more enjoyable:

1. Take Life easy: In the words of Elbert Hubbard, “Don’t take it too seriously; you’ll never get out of it alive.”

First, understand that life is neither easy nor fair; rule of the Jungle still prevails in this so-called civilized world. But, if life is neither easy nor fair, how can we take it easy?

Actually, knowing in advance about this harsh fact about life make it easier for us to deal with the reality which is always different from our own perception. This knowledge helps us to flow with the tide rather than against it. We also stop complaining and judging every event in our life as good or bad. Put another way, it helps us to develop the let go feeling.

Read this nice article about enjoying life: Take it Easy and Enjoy Life.

2. Live your own life: Stop comparing yourself with others whether they’re your friends, colleagues, relatives or neighbours. Why? Because it is a self defeating exercise.

Robin Sharma in his best selling book “The Monk Who Sold His Ferrari” writes,

“There is nothing noble about being superior to some other person. True nobility lies in being superior to your former self.”

Further, he writes,

“And for God’s sake, never get into the petty habit of measuring your self-worth against other people’s net worth. As Yogi Raman preached: ‘Every second you spend thinking about the someone else’s dream you take time away from your own'”.

Know the “10 reasons why you should give up the bad habit of making comparisons?”

I am quoting a few lines from the above article [A must read!]:

“The only way to even begin to live a purposeful, simple life is to give up any notion that you are in competition with any other single person. Life is not a game, it’s not a test, it’s not a winner takes all experience. It’s just life – and what happens during your time here is up to you. If you spend your time comparing your belongings, lifestyle, job, family, etc. to anyone else, well…you are being set up for a very complicated existence.”

3. Stop trying to please everyone: Remember that nobody can please everyone around him. In trying to please everyone, you will lose your own happiness. So stop trying to meet the expectations of everyone around you. Do your level best for others but don’t be unnecessary worried if you’re not able to come up to expectations of everyone in your circle. Pleasing everyone is a sheer impossible task.


4. Have a feeling of Gratitude: We remain dissatisfied because no matter what we have, we are always searching for more. By wanting more & more we don’t realize the prize we pay for it. The never enough syndrome robs us of the ability to rest & relax.

The simple yet powerful secret to happiness is to be thankful for all the wonderful things we have in our life. It is to acknowledge and be grateful for what we already have rather than moaning over what we don’t have. In short, it means having attitude of gratitude.


5. Slow Down: Simplifying life also means slowing down. Therefore, stop living fast –paced life.

Giving up the fast paced life and joining the slow movement is not about renouncing the world or giving up earthly pleasures rather it is about coming out of the rat race and applying the brakes on the speed limit. It’s about less rushing around and more enjoying what is there. This no rush attitude is more about life quality rather than the quantity. When we slow down, our approach towards life takes an entirely new meaning and we feel more relaxed and happy.

So, start living slowly. Eat slowly, drive slowly, love slowly, walk slowly, talk slowly, read slowly, work slowly and you’ll feel the difference. However, remember there’s a difference between being slow and being inefficient.

Here’s an interesting article about slowing down to enjoy life.

Know more about this Slow Movement: The Slow Movement- Making a Connection.

Believe me, these lifestyle and attitudinal changes doesn’t require any extra efforts on you behalf, just a little change in your thinking (in the way you perceive life). But gradually inculcating these positive emotions in your daily life (by becoming a little more conscious of your thoughts and actions) can make a whole lot of difference in your well-being.

I’ll talk about a few more ways to simplify your life in next part. Meanwhile, just go through each of the articles mentioned above and if you wish share your thoughts in the comment section.

Also see:

1. Savings: A step towards sustainable living
2. First Blog Anniversary

3. 4 Other Ways to Live a Simple & Happy Life

The Money Quest: First Blog Anniversary

Photo by Kagoo_bythesea

Mai akela hi chala tha janebemanzil ki taraf,
Log aate gaye aur karwa banta gaya.

--Ghalib

Dear Friends / Readers,

I hope that you are enjoying this fishing expedition as promised by me at the start of the journey.

It’s hard to believe that a year has passed and this blog is now one year old. However, this is not a time to celebrate. Rather it’s time to reflect on the past performance and know what’s working and what’s not. And who is a better judge than you.

I’ll really appreciate if you can just spare a few moments of your precious time and give a feedback. I can give you some pointers on which to base your assessment:

1. Is this blog delivering the content as promised in the welcome message / mission statement?

2. Is the information and analysis published in this blog any different from other sources of financial information available to you such as newspapers, personal finance magazines, finance portals, online forums and other personal finance blogs in terms of relevance, accuracy, uniqueness, quality and presentation of content?

3. The last and the most important yardstick: Has it made any difference to your understanding of personal finance or the importance of managing your finances in a better and organized manner?

4. What are your suggestions, if any, to further improve this blog performance and make it more useful for you?

So be my boss and provide an honest assessment of ‘The Money Quest’ performance in terms of the above parameters. Your feedback is really important to help this blog serve you better.

Anyway, I’m very grateful to all of you who visit this blog, read and comment. It really means a lot to me and it’s very much appreciated! This blog wouldn’t be the same without all of you.

Once again, thanks to you all for visiting this blog and I hope you’ll keep doing so.

Warm Regards

Fisher

P.S. In the coming months, the journey will become more exciting and entertaining.

Also see:

1.Welcome to ‘The Money Quest’

2. How to Simplify Your Life

PPF Interest Calculator

Photo by D-Kav

UPDATE (Jan 2012): Now that PPF Interest rate has been revised since 1st Dec’ 2011 (increased from 8.00% to 8.60%), the PPF Interest Calculator also need to factor-in the revised rates. But, what if the PPF interest rate is revised again?

Instead of devising the new PPF Calculator, I’ve incorporated the PPF Interest Rate as another variable in this excel based PPF Interest Calculator; now you will be in a position to change it yourself based upon the applicable rate of interest on PPF Accounts. Besides, you will also be able to figure out the exact amount of additional benefit on account of 0.6 per cent increase in the PPF interest rate by calculating for both 8 per cent as well as 8.6 per cent interest rate.

Simultaneously, the maximum PPF deposit limit has also been raised from Rs 70,000 to Rs one lakh during a financial year. The revised version of the PPF Calculator also takes into account this new feature.

I’ve designed a PPF Interest Calculator in excel sheet (which shows PPF returns and maturity value after different time periods) to help you plan your PPF investments. Similar to the ‘Income Tax Calculator’ designed earlier, which is, as of now, the only online tax Calculator to provide you with the accurate tax liability figure (by including all the possible permutations and combination of different kinds of taxable income, special tax rates applicable on certain income and the various conditions and restrictions imposed on section 80 deductions), this PPF Returns Calculator is also only one of its kind. You would find many online PPF Returns Calculators available on the net but none of them is as good as this one. Try comparing it with other PPF Interest Calculators.

Actually, the PPF (Public Provident Fund) interest calculation is a bit complicated due to various factors such as interest calculated on monthly basis but compounded on annual basis, no interest paid for a particular month if the amount is deposited after 5th of the month, interest always credited to the PPF account at the end of the financial year (i.e., 31st March), varying minimum duration of the PPF (ranging from 15 years 1 day to 16 years) depending upon the first month of the deposit.

Before using the PPF Returns Calculator to know the maturity value and the interest earnings and to plan your future investments in the PPF account, first you need to understand how the PPF account actually works. Please see ‘10 Tips about PPF Investing’.

To simplify the PPF returns Calculation, I had to make certain assumptions which are as follows:

PPF Interest Calculator: Assumptions1. Deposit by 5th of the month: It is assumed that every deposit made by you in your PPF account is on or before 5th of a month.

2. Recurring Deposits: The second assumption is that you’re making a recurring deposit in your PPF account either annually or monthly. Recurring annual deposit means that the same amount is deposited in the PPF account every year (and in the same month). Similarly, recurring monthly deposit means that every month you’re depositing same amount in your PPF account.

3. Applicable for PPF accounts opened on or after April 2003: PPF Calculator is based on interest rate of 8% [Update: also 8.60%] per annum (p.a.). In other words, use the Calculator to calculate interest earned on your PPF account if the account is opened on or after 1st April 2003. If you started investing in PPF even before the month of April 2003, then this PPF Calculator is not applicable.

Instructions for using the PPF Calculator:
1. The value of N (number of years) can be 16, 21, 26, 31 or 36 only.
It means that investment in PPF account is for a minimum lock-in period of 16 year. If you extend it for another 5 years then either you keep on investing same amount of deposit for the next 5 years (put n=21) or the extension is without any further deposits (then put n=16). However, the Calculator will show you the PPF returns and the maturity value at the end of 21 years in both the cases (i.e., n=16 as well as n=21) in addition to returns and the maturity value at the end of 16 years.

The same process is followed for every 5 year extension of PPF account. 1. PPF vs. NSC: How to Decide?

So understand that n is the number of years for which you make investments in the PPF account. For example, if you make regular investment for 26 years (monthly/annually) put n=26 and you’ll know the interest earnings and the maturity value at the end of 16, 21, 26, 31 and 36 years.

2. In the 'month of deposit' ("M")column put 1 for January, 2 for the month of February and so on. The maximum value can be 12 which represents the month of December. Also understand that in case of ‘Monthly PPF Calculator’, month of deposit means only the initial or first month of deposit.

3. The value of “A”, the amount of recurring deposit can’t exceed Rs 5,833 Rs 8,333 in case of monthly deposit and Rs 70,000 Rs. 1,00,000 in case of annual deposits.

4. There are two separate PPF Interest Calculators combined into one excel sheet. First one is applicable for monthly recurring deposits in PPF account and second one is applicable for annual recurring deposits. Use the one applicable to you. You can also use both the Calculators to compare monthly deposits with annual deposits.

After making so many assumptions, doesn’t the PPF returns calculator lose its relevance? Not at all! As already stated, the basic idea behind the Calculator is to help you get a broader view of PPF returns and to make the PPF investment planning easier for you.

Anyway, the actual PPF interest calculations can be seen from your PPF account statement or the passbook.

So, here’s a PPF Calculator (Revised Version) that actually works!

If you come across any bug in the PPF Interest Calculator or need some clarification regarding the PPF Calculator, just write it down in the comment box.

Anyhow, your feedback and suggestions is really important for me to understand what’s working and what’s not.

Also see:

2. 10 Tips for Investing in PPF

3. 4-in-1 Loan Calculator

4. Income Tax Calculator

NRIs Tax Planning - Residential Status (#1)

Photo by Olastuen

There is widespread confusion among the Indian diaspora (Indians or PIOs making a living abroad) about their residential status (resident vs non-resident) in India. After reading this post you’ll have a clear picture and know all the answers to the following questions (FAQs) about residential status:

1. Who is a non-resident Indian (NRI)?

2.What’s the difference between residential status (resident in India / non-resident in India) and citizenship (Indian citizen vs Foreign citizen)?

3. How many types of residential status are there under various Indian laws?

4. How to determine the residential status under Indian Income Tax Act, 1961?

5. How the residential status under IT Act differs from residential status under FEMA?

6. What's the significance of different residential status under Income Tax (IT) Act and under Foreign Exchange Management Act (FEMA)?

7. What’s the difference between non-resident and non-resident Indian (NRI)?

8. Whether residential status of an individual is to be determined every year?

9. Is it possible to be resident of more than one country at the same time?

10. What are different ways in which non-resident Indians (NRIs) can plan their residential status to minimize tax liability under IT Act?

11. How does residential status affect the tax liability of a non-resident Indian (NRI)?

12. What happens if you lose your NRI status? What are the other escape routes provided under IT Act?

Determining the Residential Status
First, residential status and citizenship is not the same thing. You may be an Indian Citizen but a non-resident in India. It is also possible that a foreign citizen is resident / non-resident in India for tax purposes. For instance, acquiring foreign citizenship, say, of US or Canada doesn’t mean that you can’t be a non-resident Indian (NRI).

Second, you can be resident of more than one country (as per the tax laws of the respective countries) at the same time.

In common parlance, an Indian living abroad is known as a non-resident Indian (NRI). But the legal position is entirely different. The term 'non-resident' and 'non-resident Indian' has been defined separately under the Foreign Exchange Management Act, 1999 (FEMA) and Income Tax Act, 1961.

But what is the significance of different residential status under FEMA and IT Act? While residential status under FEMA is for the purpose of banking and investments in India, residential status under IT Act is for the purpose of determining your tax liability in India.


Residential status under FEMA
Under FEMA, the day you leave India (for taking up employment outside India, or carrying on business/vocation outside India or for any other reason) with an intention to stay outside India for an uncertain period, you become a non-resident Indian (NRI) and the day you come back to India (for taking up employment in India, or carrying on business/vocation in India or for any other reason) with an intention to stay in India for an uncertain period you lose your NRI status.


Residential status under Income Tax
Unlike FEMA, where the residential status is determined based on your ‘intention to stay,’ the residential status under Income Tax Act is determined based on the ‘actual stay’ in India / abroad.

To be a non-resident Indian (NRI) under IT Act, you’ve to satisfy two conditions:

1. You should be a ‘non-resident’ as per the definition provided u/s 6(1) of the Income Tax Act, 1961.

2. Furthermore, you need to be either an Indian Citizen or a person of Indian Origin. Under section 115C(e) of the Income tax Act, a NRI is defined as a ‘non-resident’ individual who is a citizen of India or a person of Indian origin (PIO). You’re deemed to be of Indian origin (according to IT Act) if you or either of your parents or any of your grand-parents was born in undivided India.

Here, for the purpose of determining the residential status of an individual under the IT Act, I’m limiting the discussion to only Indian citizens / PIO who are already working abroad or the Indian citizens going abroad for taking up employment outside India.

Put another way, this discussion is not relevant for foreign citizens, Indian citizens going abroad for tourist purposes and Indian citizens making foreign trips in connection with their employment in India.

Under IT laws your residential status is determined every year as it may change from year to year and is dependent on your physical stay in India during a financial year. For counting the number of days of stay in India, your day of entry / departure should be counted as stay in India.

Now, for the purpose of determining the residential status, your physical stay in India / abroad can be broadly divided into three different periods:

i) The first year when an Indian citizens is going abroad to take up employment abroad.

ii) Subsequent visits to India after becoming NRI

iii) Final return to India to permanently settle down in India.

First Year of leaving India
If you leave India for the purpose of taking up employment abroad, you become an NRI in the year of your departure if your total stay in India is less than 182 days. In other words, the cut off date is 29th September of the relevant financial year.

So, ensure that you leave India before 29th September to acquire NRI status and avoid paying tax on your foreign income of the relevant FY.


Subsequent years
To maintain your NRI status in all the subsequent financial years, you have to just ensure that

i). You stay abroad and do not visit India at all during the FY, or

ii).Your stay in India during the FY is less than 182 days.

In other words, you can come to India every financial year (FY) and can stay here for a maximum period of 181 days (i.e., around 6 months) without losing your NRI status.

Now, if you wish to stay for more than 181 days, you should so plan your visit that stay of more than 181 days (up to a maximum of 362 days) should fall under 2 FYs and stay during each FY should not be more than 181 days.


Year of your final return to India
The residential status of returning non-resident Indians (NRIs), i.e., those who are coming back to finally settle down in India shall be discussed in next part.

Meanwhile, in case of any doubts regarding the definition of NRI, feel free to ask in the comment box.


Also see:

1. NRI Bank Accounts – Difference between NRO & NRE

2. NRIs Tax Planning: A Brief Overview

3. Returning NRIs: Residential Status

4. Income Tax: Common Sources of Confusion