Understanding the Income Tax Rules for NRI (Non-Resident Indians) in India

Taxes collected from the citizens are the foundation of the Indian economy. Without any collection of tax, the economy of any country cannot sustain and grow. In India, taxes are collected from Indians. But what for those who are Indian citizens but are earning outside India. The income tax rules and perks allowed to them are almost different from those applicable to Indian residents. In the below article, we will discuss Income Tax for Non-Resident Indians (NRIs). But before moving ahead, we should know who non-resident Indians are and how they are different from resident Indians. Let us begin our journey.

Who are Non-Resident Indians according to the law?

Non-Resident Indians, better known as NRIs are citizens of India or Persons of Indian origin who qualify as Non-Residents in India for the relevant tax year. According to Income Tax, a ‘Non-Resident’ is defined as an individual who was present in India for less than 60 days during the relevant tax year.

In the case of Indian citizens who leave India during the year for the purpose of employment outside India for at least 182 days would be a nonresident.

Additionally, when a citizen of India or a person of Indian origin who is outside India visits India in any year, he would be regarded as Non-Resident if his total stay in India is not more than 182 days in the relevant tax year.

Are NRI required to File Income Tax Return?

Yes, Resident, or non- Resident of India, any individual whose income exceeds Rs 2, 50,000 required to file its income tax return in India.

The last date to file an Income tax return in India is 31st July for Non- Resident of India. In case, the tax liability exceeds Rs 10,000 in a financial year then the person is required to pay the advance tax. Furthermore, the interest under section 234B and section 234C is applicable when the person does not pay the advance tax. File your Income-tax return now!

What Incomes are Included in the NRI’s Income?

Once the person has proved his residential status, he is required to calculate his taxable income. If his total gross income is more than INR 2.5 lakh in a financial year, he will be liable to pay tax. The below discussed are the categories of taxable income.

• Income earned from salary or professional consultation.
• Income earned from house property (a standard deduction of 30% applies).
• Income earned from doing business in India.
• Income earned from other sources like Interest on NRO Deposits, dividends, or gifts.
• Income earned from capital gains arising out of the sale of assets.

What are the circumstances when it is not necessary for a non-resident Indian to file Income Tax Return?

According to Section 115G of Income Tax Act, 1961, it shall not be necessary for a non-resident Indian to furnish under sub-section (1) of section 139 a return of his income if:

• the total income in respect of which he is assessable under this Act during the taxable or previous year consisted only of any investment income or income by way of long-term capital gains or both; and
• the tax deductible at source (TDS) has been deducted from such income.

How is the Income of an NRI Taxed in India?

Being a non-resident Indian (NRI), if your salary is accrued in India, it is taxable. The income will be taxed as per your slab rate. Following are certain income types that are taxable as per the Indian laws:

• Salary income
  Despite being an NRI, if your salary is paid regarding any service provided in India, it shall be taxed. Further, if your employer is an Indian government and you are the citizen of the country, even if you are accruing income by providing services outside the country, it will be taxable. Keep in mind that the income of Ambassadors and Diplomats are exempted from taxation.

• Income from residential property
  Being an NRI, if you have a property situated in India and are earning an income, it is taxable. The calculation of this income is like that of a resident. Further, you can also claim an average Deduction of 30%, deduct taxes of property, and gain advantages of an interest deduction in case you have a Home Loan. Also, if you have a tenant, whether he is paying the rent in your Indian account or the one situated abroad, he is eligible to deduct 30% as TDS. You are also eligible to get a deduction for principal repayment under 80C. During the purchase of the property, if you have paid for the stamp duty and registration charges, you can also claim the same under 80C.

• Income accrued from other sources.
  The other sources include income from savings accounts and fixed deposits held in banks situated in India. Such incomes are taxable as per the law. Further, interest accrued on FCNR and NRE is free of tax. Interest earned on NRO account, on the other hand, is completely taxable for an NRI. Also, if you have a business or profession set up in India and you are earning income from it, it will be then taxable accordingly. Moreover, if you are transferring any Capital asset or are earning anything from the capital, the amount shall be taxable.

• Investments and Deductions
  Under section 80 of the income tax department, no deduction is allowed while calculating certain investments from which income is derived in foreign currency, such as:
  • Stocks in a public or private Indian company
  • Deposits with public companies or banks
  • Debentures by a publicly listed Indian company.
  • Central government’s security
  • Any other asset of the central government

What are the Deductions and Exemptions available to an NRI?

After discussing the taxable incomes of NRI, now let us look at deduction and exemptions applicable to NRI.

• Deductions available under 80 C
  Most of the deductions available under 80 C can an NRI like any life insurance premium, children tuition fees payment, principal repayment for a home loan or for the purchase of new house property, Unit-linked Insurance Plan (ULIP) investment and Investment in ELSS. A maximum deduction for an amount of 1, 50,000 are allowed for the financial year 2017-18.

• Deductions available under 80D
  NRIs are also allowed to claim deduction under 80D for a premium paid for health insurance policy up to Rs 50,000 for senior citizens and up to Rs 25,000 in other cases like for self-insurance, insurance for spouse and dependent children.

• Deductions available under 80G
  Under section 80G, the deduction which can NRI is for the donation made for any social cause.

• Deductions available under 80TTA
  NRI can also take benefit under 80 TTA which is towards interest income on the savings bank account. The maximum limit is Rs.10, 000 as is available to the resident Indians.

• Deductions available for educational loan
  NRI can also claim a deduction for the interest payment on any kind of education loan. The loan may be for the higher education of NRI or for the spouse and children.

Takeaway

As an NRI, you may want to err on the side of caution when it comes to NRI taxation. The rules for you are slightly different compared to Resident Indians, and in some cases, you may end up paying double tax if you are unaware of the rules. It would be a good idea to understand tax policies and make the most of the tax benefits available to you.