Understanding Nri Status For International Students: A Guide

The term NRI refers to Non-Resident Indian, which means an Indian citizen who spends more than half of the fiscal year outside of India. This status comes with different laws and regulations than those for permanent residents of India. Students studying abroad are considered NRIs according to FEMA (Foreign Exchange Management Act) regulations, which consider the intention of the individual to stay abroad. However, under the Income Tax Act, taxation depends on the residency status, and students studying abroad may not be considered NRIs from a taxation perspective.

Are international students NRI?

International students are treated as NRIs under foreign exchange regulations

International students are treated as NRIs (Non-Resident Indians) under foreign exchange regulations. This means that Indian students going abroad for studies are eligible for the same facilities as NRIs. There are several implications to this, particularly concerning taxation and bank accounts.

Taxation

According to the Income Tax Act, residency status determines whether an individual is taxable in India. An NRI is taxable in India on their India-sourced income and any income directly received in India. Income earned outside of India is considered foreign-sourced income and is not taxable in India. If an NRI sells stocks of an Indian company, this is taxable in India. However, if an NRI's total taxable income in India does not exceed the maximum amount, they are not liable to pay tax.

It is important to note that the number of days spent in India does not determine NRI status, but rather the intention to stay abroad. If a student leaves India in August or September, they will likely be considered an NRI for income tax purposes.

Bank Accounts

Students studying abroad are obligated to convert their existing Indian bank accounts into Non-Resident status to comply with the law. A student holding a non-resident ordinary (NRO) bank account in India may withdraw and repatriate up to $1 million per financial year from their NRO account. However, they are not allowed to keep a savings bank account or resident fixed deposits in the bank.

Loans

Educational and other loans availed by students as residents in India can be allowed to continue even after they become NRIs.

Students studying abroad are taxed on India-sourced income

The tax residency status of students studying abroad is determined by several factors, including the duration of their stay in India during the relevant financial year and the preceding financial years. This determination is crucial for understanding tax compliance in India and abroad.

According to the Income Tax Act, an individual's tax residency status depends on various primary and additional conditions. The primary conditions relate to the duration of an individual's stay in India within the relevant financial year and the four preceding financial years. If a student has stayed in India for 182 days or more during the relevant financial year, they are considered a resident of India.

Additional conditions consider an individual's residency in the past ten financial years and their presence in India during the seven years immediately preceding the relevant financial year. If a student meets any of the primary conditions and both additional conditions, they are deemed a resident of India for tax purposes.

While students studying abroad are considered non-resident Indians (NRIs) under foreign exchange regulations, their tax status for income tax purposes is more complex. Their tax liability in India depends on their income sources and whether they meet the conditions for tax residency.

Any income earned by students studying abroad from India-based sources or directly received in India is taxable in India. This includes capital gains from the sale of shares of Indian companies. However, if the total taxable income in India does not exceed Rs 2.5 lakh, they are exempt from paying tax. Additionally, students may need to declare any income earned abroad, which may be taxable in the country where it was earned and in India, depending on their residential status.

Furthermore, the Finance Bill 2020 introduced an amendment that levies a Tax Collected at Source (TCS) on any overseas remittance of ₹7 lakh or more in a financial year. This TCS rate is typically 5% but can be reduced to 0.5% if the amount is sourced via an education loan. It's important to note that the amount paid as TCS can be refunded during the filing of income tax returns if there is no tax liability.

Students must convert existing Indian bank accounts to Non-Resident status

Students studying abroad are considered Non-Resident Indians (NRIs) under foreign exchange regulations. This means that they are eligible for the same facilities as NRIs, and any educational or other loans availed by students as residents in India can be continued. Students who intend to live abroad for an extended period must inform their bank, which will then convert their resident bank accounts to foreign currency accounts.

According to the Foreign Exchange Management Act (FEMA), NRIs must close all their resident savings/current accounts or convert them to Non-Resident Ordinary (NRO) accounts. An NRO account allows students to withdraw and repatriate up to $1 million per financial year. To convert a resident Indian account to an NRO account, individuals must submit the following documents to their bank:

• Application form for conversion
• Identity proof: Passport/Aadhaar card/driving license/Voter's ID
• Address proof: Driving license, Voter's ID, proof of possession of Aadhaar number, job card issued by NREGA, letter issued by the National Population Register, or Passport
• Foreign Account Tax Compliance Act (FATCA) declaration as applicable for the United States (US) or Common Reporting Standard (CRS) for the United Kingdom (UK), Canada, or any of the 100+ countries that have adopted CRS
• Permanent Account Number (PAN) card or, in its absence, Form 60 for opening a savings bank account

Please note that the list of documents may vary from bank to bank, and it is essential to consult with a tax professional to understand the specific rules and regulations that may apply.

Students can hold a non-resident ordinary (NRO) bank account

Indian students going abroad for studies are considered non-resident Indians (NRIs) under foreign exchange regulations. As such, they are eligible for the same facilities as NRIs, including the ability to hold a non-resident ordinary (NRO) bank account.

An NRO account is a type of bank account that allows NRIs to manage their income and deposits earned in India, such as rent, dividends, pensions, and proceeds from the sale of property. The account is denominated in Indian Rupees and can receive funds in both Indian and foreign currencies. However, withdrawals can only be made in Indian Rupees. NRO accounts are subject to taxation in India, and Tax Deducted at Source (TDS) is applicable on the interest accrued. Additionally, principal repatriation is limited to USD 1 million annually, per account.

To open an NRO account, students can visit the nearest branch of their chosen bank, fill out an account opening form, and submit the required documents. It is important to note that the process and timeline may vary across different banks. Therefore, it is advisable to consult the bank's relationship manager for detailed information.

It is worth mentioning that, as per the Foreign Exchange Management Act (FEMA) guidelines, an NRI cannot hold a standard savings account in their name in India. Once an individual obtains NRI status, they must convert their existing resident savings account to an NRO account. However, opening an NRO account is not mandatory, and NRIs have the option to choose from different types of accounts, such as NRE (Non-Resident External) accounts, to manage their finances effectively.

Students on an F1 visa are non-residents of the US for the first 5 years

The F1 visa is a non-immigrant visa for individuals wishing to study in the US. The visa allows foreign nationals to enter the United States as full-time students at accredited academic institutions. To qualify for the visa, students must be enrolled in a program or course of study that culminates in a degree, diploma, or certificate, and the school must be authorized by the US government to accept foreign students.

F1 visa students are considered non-residents of the US for the first five years for tax purposes. This means that they only need to report their US-sourced income when filing their tax returns. However, if they pass the Substantial Presence Test, they will be considered residents for tax purposes and taxed on their worldwide income. The Substantial Presence Test determines whether an individual who is not a US citizen or permanent resident should be taxed as a resident or nonresident alien for a specific year. To pass the test, the individual must be physically present in the US for at least 183 days over a three-year period, including the current year and the two years before that.

It is important to note that F1 visa students are still required to file tax returns in the US, even if they have no income. They may also be eligible for certain tax exemptions, such as on scholarship stipends or housing allowances. While F1 visa students cannot use TurboTax to file their taxes, as it is only for US residents, they can use other services like Sprintax, which is designed for nonresident tax filings.

Additionally, F1 visa students must maintain their student status while in the US. This means fulfilling the purpose for which the visa was issued and following associated regulations. For example, F1 visa students may not work off-campus during their first academic year, but they may accept on-campus employment subject to certain conditions. After the first academic year, they may engage in three types of off-campus employment: Curricular Practical Training, Optional Practical Training, and Science, Technology, Engineering, and Mathematics (STEM) Optional Practical Training.

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