Non-Resident Indian (NRI)

A Non-Resident Indian (NRI) is, for income tax purposes, an individual whose physical presence in India during a financial year is below the thresholds set out in Section 6 of the Income Tax Act, 1961. The designation has narrow tax meaning — it is the statutory opposite of “Resident” under Section 6 — and determines whether the person is taxable in India on worldwide income (residents) or only on income sourced or received in India (non-residents). “NRI” is also used socially and administratively to describe Indian citizens living abroad, including under the FEMA 1999 regime for bank accounts and investment rules, but the tax and FEMA definitions are not identical and a person can be an NRI under one and not the other.

How NRI Status Is Determined

Residency for tax purposes is decided freshly each financial year (April 1 to March 31), based solely on physical presence in India during that year and the four preceding years. Citizenship is irrelevant — an Indian citizen permanently abroad can be a non-resident, and a foreign citizen living in India can be a resident.

Basic Residency Tests (Section 6(1)):

An individual is a resident in India if they satisfy either test:

• Test 1 — 182-day rule: Physical presence in India for 182 days or more during the financial year, OR
• Test 2 — 60+365 rule: Physical presence in India for 60 days or more during the financial year AND 365 days or more cumulatively during the four preceding years.

If neither test is met, the person is a non-resident.

Modifications for Indian Citizens and PIOs:

For Indian citizens leaving India for employment abroad, and for Indian citizens or Persons of Indian Origin visiting India, Test 2’s 60-day threshold is extended to 182 days. This concession was historically used by NRIs to visit India for up to 181 days a year without triggering residency.

Finance Act 2020 Amendment — the 120-day rule:

From Assessment Year 2021-22, Test 2’s threshold becomes 120 days (not 182) for Indian citizens and PIOs whose Indian-sourced income exceeds ₹15 lakh in the year. High-earning visitors can no longer spend 181 days in India and retain NRI status — the ceiling drops to 119 days.

Finance Act 2020 Amendment — Deemed Residency (Section 6(1A)):

An Indian citizen with Indian income above ₹15 lakh who is not liable to tax in any other country “by reason of his domicile or residence or any other criteria of similar nature” is deemed to be a resident of India. This was introduced to target “stateless” Indians who structured their affairs to avoid tax residence anywhere.

NRI Residency Decision Table

Tax Implications for NRIs

Why NRI Status Matters for Foreign Companies

Foreign companies encounter NRI tax questions in two high-risk scenarios. First, when hiring an Indian-origin employee who is based abroad but performs work for the foreign company — the employer needs to determine whether any Indian source rule applies, whether TDS is required, and whether DTAA benefits reduce withholding. Second, when a current foreign employee of Indian origin spends extended time in India working remotely — this can trigger Indian tax residency for the individual and, separately, expose the foreign company to Permanent Establishment risk in India.

The 120-day amendment is particularly dangerous. A PIO employee earning above ₹15 lakh in Indian-sourced income (which can happen faster than expected when share vesting or bonus counts) can cross into Indian residency after just 120 days of combined work-and-visit time. At that point, their worldwide income becomes taxable in India — a result the foreign employer must track if they run the employee’s payroll.

Companies hiring Indian talent who work partly from India and partly abroad should assume the India-sourced portion of salary is subject to TDS unless the employee is clearly non-resident under Section 6 and the work is wholly performed outside India.

How Omnivoo Handles NRI Payroll

Omnivoo processes payroll for employees physically working in India under Indian tax residency — which is the default for EOR employment. For cross-border and residency-edge-case scenarios, Omnivoo flags employees who change physical location mid-year, tracks India-day counts against the 60/120/182 thresholds, and recalculates TDS under the correct residency status when a change is detected. For companies employing Indian-origin talent abroad through an EOR model, Omnivoo routes those engagements outside Indian payroll and into the applicable country entity, eliminating incorrect Indian TDS deductions on genuinely non-resident income.