‘Not Permanently Resident in India’ – a special category under FEMA:

‘Not permanently resident in India’ (‘NPRI’) is a very unique concept in Foreign Exchange Management Act, 1999 (‘FEMA’) which is mainly used for expatriates who come to India for employment purposes. In most of the cases, their intentions are not to stay in India for a very long period of time but to exercise their employment and shift or move back to their homeland.

If we analyse the definition of ‘resident in India’ under FEMA, these individuals would qualify as ‘resident’ in India. Bur such individuals are also further categorised as ‘not permanently resident’ if they fall withing the following definition:

A person resident in India on account of his employment or deputation of a specified duration (irrespective of length thereof) or for a specific job or assignment; the duration of which does not exceed three years, is a resident but nor permanently resident.

The relaxations given to such individuals are listed below:

Remittance of salary:

A person who is resident but not permanently resident in India and

  1. is a citizen of a foreign State other than Pakistan; or
  2. is a citizen of India, who is on deputation to the office or branch of a foreign company or subsidiary or joint venture in India of such foreign company,

may make remittance up to his net salary (after deduction of taxes, contribution to provident fund and other deductions).

Generally, individuals who are resident in India can open bank account outside India and remit funds under Liberalised Remittance Scheme or few other circumstances. Apart from this, a resident (FEMA) cannot open bank account outside India or remit funds abroad.  However, as mentioned above, NPRIs can remit their salary outside India after taxes and other deductions.  For this they can open bank account outside India.

Permission to an Indian entity to remit funds in certain cases:-

An entity in India can remit its contribution towards the provident fund/ superannuation/ pension fund in respect of the expatriate staff in its employment who are resident in India but not permanently resident therein.

‘Expatriate staff’ means a person whose provident/ superannuation/ pension fund is maintained outside India by his principal employer outside India.

Income tax implications:

There is no correlation between residential status under FEMA and Income tax Act except for taxability of NRE account interest.

One may be a ‘resident in India’ under FEMA but still a non-resident under Income tax Act. Taking it further, an individual who is also a ‘resident but not permanently resident’ under FEMA, may be a non-resident / resident and ordinarily resident or resident but not ordinarily resident. Hence, his residential status under Income tax Acct will have to  be checked separately.

Further, under the section 9 of Income tax Act, salaries will be taxed in India if the employment is exercised in India. Hence, if the individual is performing his services in India, his salary will be liable to pay tax in India irrespective of whether the salary payment is made in bank account in India or the foreign country.

Expat taxation is a complete topic in itself involving many complexities and intricacies. The above explanation is just an overview. Much also depends on facts in each case. It is always advisable to approach a tax consultant before going any further.


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