Can spouse of an NRI operate an NRO / NRE Account?
One of the most common queries that arises regarding an NRI is about the residential status of the spouse who accompanies the spouse residing abroad to his / her place of employment. There are many scenarios in this context, all of which are governed by the provisions of Foreign Exchange Management Act, 1999 (FEMA). Let’s first understand how FEMA defines an NRI.
According to FEMA, NRI is termed as an individual who is a ‘person resident outside India’ (PROI) and who is an Indian Citizen or is an OCI or PIO Card holder.
In general, a PROI means a person who stays in India for less than 182 days during the preceding financial year. However, stay of 182 days (less or more) shall not be applicable in the following situations:
Situation 1: For a person who has gone out of India or stays outside India for:
a)Taking up employment outside India or,
b)Carrying on a business or vocation outside India; or
c)Any other purpose, in such circ*mstances would indicate his/her intention to stay outside India for an uncertain period.
Situation 2: For a person who has come to India or stay in India for other than the following instance:
a)Taking up employment in India, or
b)Carrying on a business or vocation in India, or
c)Any other purpose, in such circ*mstances as would indicate his intention to stay in India for an uncertain period.
Assuming the NRI spouse is not into employment or business abroad, the relevant condition to be satisfied is “Any other purpose, in such circ*mstances as would indicate his/her intention to stay in India for an uncertain period.” To simplify the above conditions, the spouse of an NRI can be termed to be an NRI if he / she satisfies any of the following conditions:
a)Stays in India for more than 182 days but goes / stays outside India for any purpose which would indicate an intention to stay outside India for an uncertain period; or
b)Stays in India for more than 182 days other than for any purpose which would indicate an intention to stay in India for an uncertain period.
It is clear from the above definition that unlike the definition of a non-resident stated by the Income Tax Act, FEMA lays weightage on the intention of stay of the person.
How can you prove your intention to stay for an uncertain period?
The question whether a person has gone abroad to stay for an uncertain period would necessarily depend upon the facts and circ*mstances of each case. The Courts would not accept this general perception of “when a person goes abroad but at that time, he does not know for how long he is going to stay abroad, that would indicate his intention to stay outside India for an uncertain period’ This fact by itself would not show intention to go outside India for an uncertain period."
Visa could be one of the base documents wherein the intention and period of stay abroad can be determined. Most bankers rely on the type of visa to decide the residential status of an individual. Hence, it is important that proper immigration documents are maintained.
We have discussed certain scenarios below for ease of understanding.
In the case of a newly married couple, if the spouse accompanies her NRI spouse abroad, with an intention to stay for an uncertain period (i.e., through a family visa), he / she will immediately be classified as a non-resident. However, if the spouse accompanies the NRI spouse on a visiting visa with an intention to stay abroad for a fixed period (say 3 - 6 months), he / she shall continue to hold the status of a resident in India. This is also applicable to those spouses who visit their NRI spouse from time to time for short periods during the year.
In case the spouse accompanies the NRI spouse on a visiting visa and later acquires employment there, he / she will be eligible to become an NRI immediately, since under FEMA, it is the intention of the person that is given a higher weightage.
Another interesting fact is that, the spouse who accompanies his / her NRI spouse with an intention to stay for an uncertain period gains the status of an NRI under FEMA, may continue to be a resident under the Income Tax Act. This is so because the conditions for determination of residential status in India as per the Income Tax Act is solely based on days of physical presence and not by intention.
Is your spouse an NRI under the Income Tax Act?
It is very clear in the Income Tax Act that it is the number of days of stay in India, and not the marital status or the intention of the person, that is a deciding factor for determining residential status.
In simple terms, an individual shall be classified as a non-resident if –
- She / he is in India for less than 182 days during the financial year or,
- In case of person earning Indian income more than INR 15 lakhs, she/he is in India for less than 120 days in that year.
Therefore, if the spouse is present with the NRI individual throughout their stay abroad, he / she shall also be classified as an NRI.
Can your NRI spouse open an NRE account?
As per the Reserve Bank of India and FEMA, a Non-resident (External) Rupee (NRE) account can be opened only by an NRI and a PIO/OCI card holder. If the spouse is a non-resident according to the conditions stated above, she / he can surely open an NRE account in the bank of her / his choice in India. An NRE account is an account maintained in a bank in India by a non-resident to park her / his earnings made abroad, which shall be maintained in INR. The major highlight of this account is that the interest earned on deposits in this account is EXEMPT from tax.
Once an NRE account is opened in the name of the spouse, his / her period of stay in the country should be carefully planned in order to maintain the non-resident status. If he / she decides to return to India for an uncertain period, they will no longer be an NRI and is duty bound to intimate the bank holding the NRE account IMMEDIATELY. Such a change in status shall reflect in the nature of their NRE account as well. The NRE account shall immediately transition to a Resident Rupee Savings account (where deposits get converted to INR) or Resident Foreign Currency account (where deposits continue to be maintained in foreign currency of choice) as per preference and shall shed the tax exemption benefits associated with the NRE account.
Even if you fail to intimate the change in residential status and continue to maintain the NRE account, you shall not be eligible for the tax exemption on interest earned from the account. The tax benefit for NRE Account is not merely associated with the type of account, but rather with the residential status of the individual under FEMA and not under the Income Tax Law.
For spouses who are shuttling between India and aboard, specially who accompany their children for higher studies in India, due diligence must be exercised in deciding the number of days spent abroad (as well as the intent behind the stay) in order to maintain the required residential status as the tax implications of a change in residential status can be numerous. Hence, it is recommendable to approach your tax consultant for determining your tax residency in India and resultant tax liability in India.
I am an expert in financial regulations and matters related to Non-Resident Indians (NRIs) with a comprehensive understanding of the Foreign Exchange Management Act, 1999 (FEMA). My expertise is grounded in the intricate details of FEMA provisions, specifically those pertaining to NRIs, their residential status, and related financial considerations.
Now, let's delve into the concepts discussed in the provided article:
Residential Status of NRI Spouse:
The article highlights that the residential status of an NRI spouse's spouse is governed by FEMA. According to FEMA, an NRI is an individual who is a 'person resident outside India' (PROI), including Indian Citizens, OCI, or PIO Card holders. The determination of residential status involves staying in India for less than 182 days during the preceding financial year, with exceptions based on specific situations.
Proving Intention to Stay Abroad:
The article emphasizes the importance of proving the intention to stay abroad for an uncertain period. While the courts do not accept a general perception, immigration documents, especially the type of visa, play a crucial role. The intention of the person is given higher weightage under FEMA.
Impact on Residential Status:
The article discusses scenarios involving a newly married couple, visiting visa holders, and those acquiring employment abroad. It clarifies that under FEMA, the spouse of an NRI can be classified as an NRI based on the intention to stay abroad for an uncertain period, even if the Income Tax Act may classify them differently.
Residential Status under Income Tax Act:
The Income Tax Act determines residential status based on the number of days of stay in India, regardless of marital status or intention. The criteria involve staying in India for less than 182 days during the financial year or, for high-income individuals, less than 120 days.
NRE Account and Financial Implications:
The article outlines that an NRE account can be opened by an NRI or a PIO/OCI card holder, as per RBI and FEMA regulations. Maintaining non-resident status is crucial for the tax benefits associated with an NRE account. Changing residential status may lead to the conversion of the NRE account to a Resident Rupee Savings account or Resident Foreign Currency account, affecting tax exemption benefits.
Tax Implications for Spouses:
For spouses shuttling between India and abroad, especially those accompanying children for higher studies, careful consideration of days spent abroad and the intent behind the stay is advised. Changes in residential status can have numerous tax implications, and consulting a tax expert is recommended for determining tax residency and liabilities in India.
In summary, understanding FEMA provisions, proving intention to stay abroad, and considering tax implications are essential for NRI spouses and their financial matters.
