Students Studying Abroad – When will they become an NRI?

By
Manikaran Singal
-
students studying abroad - NRI or not

Isn’t it immediately? When my child leaves India for studies and not expected to return for next few years may be more also, As far as I know, she will become NRI the moment she leaves India.

But some where I read that she has to be out of India for at least 182 days then only she will be called as NRI, not before that.

I am confused, how should I file ITR of my child, what to do with the bank accounts and other investments in her name? These are the questions, Shalini visited me with.

Her daughter left India to Australia for higher studies in June’2018. In Feb 2019, she came to India and stayed here till 25th March 2019. So, both the conditions which she feels or heard about, for becoming an NRI are being fulfilled. She was out of India for 245 days. But still, she wanted to Cross check.

It’s not only Shalini. This is a very common confusion among people who sent their children abroad for studies.

Here I brought her attention to the definitions of NRI from Income tax act and FEMA point of view. I have written a detailed article on this subject. Click here to Read.

Students studying abroad – NRI or not, as per the Income Tax Act

NRI is the person, who should not be in India for at least a period or periods amounting in all to –

  1. 182
    days in the FY and
  2. 365
    days out of Preceding 4 FYs and 60 days in the Previous FY (Year for which we
    are checking the status)

Both the above conditions need to be satisfied for one to be called as NRI

In other words, a person will be called as ROR (Resident and Ordinary Resident) if he/she satisfies any of the above/below mentioned conditions:

If a person stays in India for at least a period or periods amounting in all to –

  1. 182
    days in the FY or
  2. 365
    days out of the Preceding 4 FYs and 60 days in the Previous FY (the Year for which we
    are checking the status)

This means in Shalini’s daughter’s case, though she was out of India for 245 days in the last financial year, she does not satisfy the second condition. She was in India for 60 days in the Previous FY, and also 365 days in the preceding 4 years.

This means that she will not be considered as an NRI from an Income tax point of View

Now let’s come to the definition of FEMA.

Students Studying abroad as per FEMA

FEMA governs money transactions. Investments, borrowings, Forex transfers, etc. You may become an NRI after completing a specific number of days in India/abroad as per the IT Act, but FEMA goes on the Intention of the person or entity to call it a Resident or Resident Outside India. It does not use the term NRI. However, it does take into account the number of days of stay, but still, Intention matters most to it.

Through Circular 45 dt. 08.12.2003, RBI has declared that for FEMA, students studying abroad will be treated as NRI as soon as they go abroad for studies.

(Source: In The Wonderland of Investments (18th Edition) 2017-18 A book by Sandeep Shanbhag)

So, in this particular case of Shalini’s daughter, She is a Resident Outside India (NRI) as per FEMA, but a Resident Indian as per the Income Tax act. This means that she will have to file ITR as per Indian Resident, but have to follow FEMA rules for NRIs, as far as monetary transactions are concerned

Let’s understand, How will this Impact her financial arrangement

Why it is important to know the Residential status as per the Income Tax Act and FEMA both?

The below-mentioned conditions are not from the perspective of students studying abroad only, but in general, and apply to all NRIs.

First of all, if you are an NRI as per FEMA you are not allowed to keep a Savings bank account or Resident fixed deposits in the bank. You are not even allowed to open any Post deposits account, NO PPF, NO MIS, Senior citizen deposit, etc. But if you already have one before becoming an NRI (FEMA) you may continue with it till maturity. (Read: PPF and NSC Amendments 2017)

They have to convert their Savings bank account to an NRO (Non-Resident Ordinary) account. and are also allowed to open NRE and FCNR accounts. (Also Read: Taxation of NRE Fixed Deposits for Returning NRIs)

NRI (FEMA) are not allowed to invest in Agricultural land in India. However, they can invest in any Residential or commercial project.

Also Read: GIFT City in India: Unlocking Investment Opportunities for Global Investors

NRI as per FEMA is eligible to receive remittances from India, which are:

  1. Upto US$1 million per FY out of sale proceeds
    of assets in their NRO account
  2. Up to US$ 250000 per FY under the Liberalized
    Remittance scheme.

There may also be multiple other rules laid down by RBI, so once you are clear on your residency status you should better be in touch with a good Tax professional to guide you on these money matters.

Especially in the case of students as we have been discussing in Shalini’s daughter’s case, since she is a Resident from ITA perspective, so she has to file an income tax return (if at all) as a Resident Indian only, and follow all the tax rules of India.

Students often take some employment abroad to cover up their expenses, like teaching, research, etc. which may be taxable in that country as well as in India depending on the residential status as per the Income Tax Act. So, that income needs to be shown in your Income-tax return.

However, Students do not have to pay taxes in both countries, as you can take benefit of DTAA (Double taxation avoidance act)

Sending Money to India from Abroad, while being NRI from an ITA perspective may also have some implications.

Conclusion:

Knowing your residency status is very important. As this will keep you on the right side of law. Your bank accounts, your investments and tax rules all may vary with the change in residency status. So, the moment you start planning for moving abroad for whatever reason, you should be clear on the change in your residency status(if any).

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19 COMMENTS

  1. My son is in US from August 19 on F1 VISA. CAN HE RECEIVE PROFESSIONAL FEES FROM INDIA in his US Account? Does he have to pay tax in India
    Will he be liable to pay taxes in US? Or this amount is lesser than US taxable

  2. First of all taxation depends upon the residency status as per the Income Tax Act & if he is a non resident then any income earned in India is subject to TDS, which he can claim the refund of or it can be adjusted under DTAA.
    This is true to the best of our knowledge but please consult International Taxation expert on this matter before taking any action.

  3. My son Study in US since September 2019. My bank refused to convert his savings account to NRI account that time saying once he returns will check his passport for date stamps then he can apply for NRI account. But I read different articles and don’t know what to do

    • Bank Accounts are governed by FEMA rules. Since your Son has gone for study, which states that his intention is to stay there for some years. You may show the bankers the passport, which would serve as proof of the leaving date and the admission letter of the university.

      If the local branch is not supporting (it may also be possible that they may not aware of the rules), you may write to the customer care of your bank and get the solution in writing.

  4. My duaghter will be going to US for further studies for 2 yrs. She has commission income in India with GST number too. Can she continue to earn commission income or she has to stop that income? Also do we have to declare her as NRI or continue status as Resident Indian? She will return after her studies after 2 yrs.

    • Hi Sonal,

      This depends upon the source from where she is receiving the commission from whether they allow NRIs to continue earning the same or not.

  5. I came to Ireland for studies in Sept 2021 and started working here from August 2022. I need to send money to my Indian to pay for my house as a down-payment. Can I use my Savings account for transactions or should I open a NRE/NRO account to avoid double taxation?

    • Ideally you should not have savings account. Its better if you convert your savings to NRO. Its not about double taxation as your residential status has already changed to NRI, so your residency rules will apply in both countries…it is because RBI does not allow NRIs to continue with their Savings account. However, regarding the specific transaction you are asking about…its better to consult your CA and if all your taxes have been paid and are well being reported, then for now you may use Savings account.

  6. I am studying in US since Aug 2021. For the financial year 22-23(AY 23-24) I have been to india for more than 60 days. My question is whether ill be considered resident in India or due to exceptions – A person visiting india during the previous year or A person leaving for employment outside India – 182 days will be applicable making me a Non resident

  8. Hi,
    My Daughter has gone to CANADA on 21st April 2023 for study purposes. She has some share in her demant liked with her savings account. Can she sell these shares and menntion the profit while filling ITR.? Alos she is doing some part time job there abd filing Income tax return there also. Please let me know if she can mantian her saving accounts here or open NRE/NRO account.

    Thanks for your help.

    regards
    Vishal

    • Reporting in the ITR to be done as per the respective country’ rules and your IT status. So if you are still a Resident in India from income tax perspective, then you have to disclose your foreign accounts and investment and pay taxes in India. otherwise for NRIs its not mandatory. Better to consult a tax expert who can guide you on all steps.

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