Income Tax for Non-Resident Indian (NRI) – Taxable Income – Exemption

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Taxation is an essential aspect of government revenue. The tax department imposes several taxes like Income Tax, Capital Gain, Service Tax, TDS, etc and these taxations in India have an effect on both on an Indian Resident & a Non-Resident Indian (NRI).

Let’s understand the How taxation system works on Non-Resident Indian (NRI)

Income Tax for Non-Resident Indian (NRI) 

All Non-Resident Indian (NRI) are liable to pay taxes if the income which is earned or accrued in India through any medium. Income earned by NRI abroad is exempt from the tax in India.

How to determine residential status?

The Foreign Exchange Management Act (FEMA) has laid down clear rules to determine Indian Resident: 

  • When He/she has lived in India for at least 182 days during the financial year.
  • When he/she has completed living for 60 Days in India of a year, in the previous year, and has completed at least 365 days living in India for the last four years.
  • Where an Indian citizen is working as a crew member on an Indian ship or working abroad, he is required to complete a 182 days period instead of ‘60 days’.
  • When an Indian citizen or a Person of Indian Origin (PIO) who is on a visit to India, the period of ‘60 days’ is to be replaced by 182 days.

If you meet any of the above conditions, you are an Indian Resident.

When Non-Resident Indian (NRI) Income is Taxable.?

Conditions when income earned by NRI is taxable in India, it also depends on your status is it Resident or NRI:

  • If your status is ‘Resident’ then your global income is taxable in India.
  • If your status is ‘NRI’ the only income earned or accrued in India is taxable.

Income source can be:

Income from Fixed Deposit and Bank Account, Capital Gain earned on transfer of assets situated in India, Rent received from land or property in India, Salary received for services provided in India, etc.

In case you are an ‘NRI’ then your foreign income will not be taxable in India.

Taxable Income for an NRI 

Let’s discuss some of the income of an NRI which is Taxable in India:

  • Income from Property: In this, if an NRI earned or accrued any income from house property or land which is situated in India is taxable for an NRI. An NRI is allowed to claim some of the deduction at the time of Income-tax return like; Standard Deduction of 30%, Interest on loan, Stamp duty and registration charges, etc.
  • Income from Interest: In this, Interest received in Saving Bank Account, interest received in Fixed Deposit and Interest received in NRO account is fully taxable in India.
  • Income from Salary: If you render your services in India or outside India then the salary arising from India is Taxable in India.
  • Business & Profession income: Income generated in India which is organized or established in Indian by an NRI is taxable in India.
  • Income from Rent: Income received in the form of rent is Taxable in India and the tenant is required to deduct TDS at 30%.
  • Income from Capital Gains: Any capital gain arises from the Investment in Shares and Securities is Taxable in India. Any capital gain arises on transfer of capital asset which is situated in India is also Taxable in India.

Buyer needs to deduct TDS at 20% in Long Term Capital gain and NRI is allowed to claim capital gain exemption.

Exemption in Long-term Capital Gain and Investment

At the time of transfer of foreign assets, you can avail the exemption (under Section 115) on the profit of the long-term capital gain when the profit is reinvested into assets mentioned by the government of India.

Assets mentioned by the government of India are:

  1. Debentures of an Indian public company
  2. Shares in an Indian company
  3. Central Government securities
  4. Deposits with banks and Indian public companies
  5. NSC VI and VII issues

They need to invest the profit in the above-mentioned scheme within 6 months and the cost of new acquisition is equal to capital gain, then capital gain is exempt. Remember, if the foreign assets, within a period of 3 years are sold back or transferred in any situation, from the acquisition date, then the profit exempt will be added to the income in the year of sale/transfer.

Income Tax Return for Non-Resident Indian (NRI)

Any individual NRI or Indian Resident is liable to pay income tax if their income (Income earned or accrued in India) exceeds Rs 2.5 lakhs. You need to file your Income Tax Return till 31st July.

In case of NRIs, the estimated tax liability for the financial year is Rs. 10,000 or more, then they are required to pay advance tax. 

For example, 

“if A estimated total tax liability for the financial year is Rs. 12,000, he is required to deposit advance tax or if A estimated total tax liability for the financial year is Rs. 8,000, there is no need to pay advance tax.”

New Income Tax Slab for 2020-21 for Individual NRIs:

Income Tax Slab Tax Rate
Up to Rs.2.5 lakh Nil
From Rs.2,50,001 to Rs.5,00,000 5% of the total income that is more than Rs.2.5 lakh + 4% cess
From Rs.5,00,001 to Rs.7,50,000 10% of the total income that is more than Rs.5 lakh + 4% cess
From Rs.7,50,001 to Rs.10,00,000 15% of the total income that is more than Rs.7.5 lakh + 4% cess
From Rs.10,00,001 to Rs.12,50,000 20% of the total income that is more than Rs.10 lakh + 4% cess
From Rs.12,50,001 to Rs.15,00,000 25% of the total income that is more than Rs.12.5 lakh + 4% cess
Income above Rs.15,00,001 30% of the total income that is more than Rs.15 lakh + 4% cess

 

Deductions NRIs can Claim 

Most of the deductions are available to NRIs. Let’s check what Deductions Under Section 80C are allowed to NRIs are:

  • Life insurance premium payment: You can claim LIC Premium payment if the policy is in your name or in the name of your family (Spouse or child name). The premium must be less than 10% of the sum assured.
  • Repayment of principal on loan for the purchase of property: They can claim the loan repayment amount taken for the property, and also claim Stamp duty and registration fees paid at the time of transfer of property.
  • ELSS Investment: They can also claim the benefits of deduction up to Rs 1,50,000 through ELSS investment.
  • Children’s tuition payment: Tuition fees paid by the NRIs to any College, School or Institution for your children can be claimed under Income Tax Return.
  • Unit-linked insurance plan (ULIPS): It is also covered under section 80C.

Deduction under Section 80D

They are allowed to claim a deduction on premium paid for health insurance. The claim amount is Rs. 25,000 for self and Rs. 50,000 for senior citizens.

Deduction under Section 80G

In the Income Tax Return deductions are allowed to be claimed against the donation.

Deduction for the Differently -Abled

They are allowed to claim a deduction for disability under section 80U, and deduction for medical treatment for a dependent who is disabled can be claimed under Section 80DDB.

Deduction under Section 80E

They can also claim a deduction on the amount paid on an education loan taken for higher studies.

Deduction under Section 80TTA

An amount of upto Rs. 10,000 deduction from the interest earned on a bank account is allowed to be claimed as Income tax return.

How to avoid double taxation?

Double taxation is the process when a person needs to pay tax twice, at the home country and to the country where income arises as well. To avoid these Double Tax Avoidance Agreement (DTAA) India has signed these between many countries, to avail the benefits of DTAA you need to do the mandatory process related to DTAA.

TO avail all the benefits related to NRIs you need to gather all the important information related to tax exemption, deduction and other benefits available to NRIs.

 

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