By Manu Rao | Updated March 2026
What Is an NRI?
NRI stands for Non-Resident Indian. The term has different definitions under different laws, and confusing them is one of the most common mistakes NRIs make when investing in India.
At its core, an NRI is an Indian citizen living abroad or a Person of Indian Origin (PIO) residing outside India. But the exact test for "non-resident" status depends on whether you are applying FEMA rules or Income Tax rules.
Two Definitions — FEMA vs Income Tax
FEMA Definition (Section 2(v) and 2(w))
Under FEMA, a "person resident outside India" is an Indian citizen who has gone abroad for employment, business, or any purpose indicating an intention to stay outside India for an uncertain period. There is no strict 182-day test. The key factor is intention.
An Indian citizen leaving India for employment abroad becomes a non-resident under FEMA from the date of departure. They do not need to wait for 182 days to pass. Conversely, a returning NRI becomes a resident under FEMA from the date they return with the intention to stay.
Income Tax Definition (Section 6)
Under the Income Tax Act, 1961, residential status depends on physical presence in India during the financial year (April 1 to March 31):
- Resident: Present in India for 182 days or more during the financial year; OR present for 60 days or more during the year AND 365 days or more during the preceding 4 years
- Non-Resident: Does not meet either condition above
- Resident but Not Ordinarily Resident (RNOR): Has been non-resident in 9 out of 10 preceding years, or present in India for 729 days or less during the preceding 7 years
The Finance Act 2020 added a wrinkle: Indian citizens with total income exceeding Rs 15 lakh (other than foreign-source income) are treated as "deemed resident" even if they spend fewer than 182 days in India, unless they are a tax resident of another country.
Why NRI Status Matters for Business in India
Your residential status determines:
Bank Accounts
- NRIs must hold NRE (Non-Resident External) or NRO (Non-Resident Ordinary) accounts. Regular resident savings accounts are not permitted.
- FCNR (Foreign Currency Non-Resident) accounts allow NRIs to hold funds in foreign currency without exchange rate risk.
- On returning to India permanently, NRE and FCNR accounts must be converted to resident accounts or designated as RFC (Resident Foreign Currency) accounts.
Investment in Indian Companies
NRIs can invest in Indian companies on two bases:
- Repatriation basis — Investment is treated as FDI. Subject to FDI caps and sectoral restrictions. FC-GPR filing required. Invested through NRE or FCNR account.
- Non-repatriation basis — Investment is treated as domestic investment. No FDI cap applies. Invested through NRO account. But profits cannot be freely sent abroad.
This distinction is critical. Many NRIs invest on a non-repatriation basis without realizing they are giving up the right to send the money back overseas.
Taxation
A non-resident is taxed in India only on income earned or received in India (Indian-source income). A resident is taxed on worldwide income. The difference can be enormous for NRIs with income from multiple countries.
NRIs can claim benefits under DTAAs that India has with their country of residence. For example, an NRI in the US can claim reduced withholding rates on Indian dividends under the India-US DTAA.
Property
NRIs can buy residential and commercial property in India under FEMA 21. They cannot buy agricultural land, plantation property, or farmhouse without RBI permission. On selling property, capital gains are repatriable subject to certain conditions and Form 15CA/15CB compliance.
NRI vs OCI vs PIO
| Category | Definition | Key Right |
|---|---|---|
| NRI | Indian citizen residing outside India | Full citizenship rights (voting from abroad, Indian passport) |
| OCI | Foreign citizen of Indian origin (or spouse of Indian citizen) registered as OCI | Lifelong visa, can work/study in India, cannot vote or hold government jobs |
| PIO (merged into OCI in 2015) | Foreign citizen who was an Indian citizen or whose parents/grandparents were Indian | PIO cards converted to OCI under 2015 merger |
How to Determine Your NRI Status
- For FEMA — Ask: Did I leave India for employment, business, or with intention to stay abroad indefinitely? If yes, you are a non-resident from the date of departure.
- For Income Tax — Count the number of days you were physically present in India during the financial year. Below 182 days (and below 60 days + 365 days in preceding 4 years) = non-resident.
- Check both — It is possible to be a non-resident under FEMA but a resident under income tax (e.g., someone who returned to India mid-year). Both statuses run independently.
Common Mistakes NRIs Make
- Keeping a regular savings account after moving abroad. Under FEMA, resident accounts must be converted to NRO accounts within a reasonable period of becoming a non-resident. Failure is a FEMA contravention.
- Investing through NRO account and expecting repatriation. NRO account investments are on a non-repatriation basis. You can repatriate up to $1 million per financial year from NRO, but this comes with tax clearance requirements (Form 15CA/15CB).
- Confusing FEMA and income tax residency. Your FEMA status determines bank accounts and investment routes. Your income tax status determines what income is taxable in India. They use different tests.
- Not filing Indian income tax returns. NRIs with Indian income above Rs 2.5 lakh (basic exemption limit) must file returns, even if tax is deducted at source. Many NRIs skip this and face notices years later.
- Returning to India without converting accounts. Returning NRIs must convert NRE/FCNR accounts to resident accounts or RFC accounts. The FCNR maturity proceeds credited after return can go to RFC. Many forget and continue operating NRE accounts, which is a FEMA violation.
Practical Example
Priya, an Indian citizen working for Google in San Francisco since 2020, wants to start a consulting company in India. She is an NRI under both FEMA (left India for employment) and the Income Tax Act (spent 0 days in India last year).
She can invest on a repatriation basis through her NRE account. Her investment is treated as FDI. Since consulting allows 100% FDI under the automatic route, she can own the entire company. She appoints an Indian resident director, remits funds from her US bank to her NRE account, and then transfers to the company's account. FC-GPR is filed within 30 days of share allotment.
Alternatively, she could invest through her NRO account on a non-repatriation basis. No FDI cap applies, and no FC-GPR filing is needed. But she cannot freely send the invested amount or profits back to the US.
Key Takeaways
- NRI has different definitions under FEMA (intention-based) and Income Tax (days-based)
- NRIs must hold NRE/NRO/FCNR accounts — regular savings accounts are not permitted
- Repatriation basis investments count as FDI; non-repatriation basis counts as domestic
- NRIs are taxed only on Indian-source income and can claim DTAA benefits
- Both FEMA and income tax statuses must be checked independently
Are you an NRI looking to set up a company in India? Beacon Filing handles NRI company registration end-to-end.