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Are you an NRI? Know the Tax Rules

Narendra Kumar

| Updated: Jan 03, 2019 | Category: Income Tax, Taxation

Income Tax for Non-Resident Indians

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.

Do NRIs need to pay tax on their Income earned outside India?

Whatever Income an NRI earn outside India is not taxable in India.

Do NRIs need to file the Income-tax Return in India?

Whether you are an NRI or not, if your income exceeds 2, 50,000, you are required to electronically file an income tax return in India.

The last date of filing an Income-tax return in India for NRIs is 31st July.

Important:  It is mandatory for residents who hold foreign assets, bank accounts, and financial interest to report these matters in their income tax returns in India

In case of any query, contact Enterslice.

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:

(a) 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

(b) the tax deductible at source (TDS) has been deducted from such income.

What could be the Reason for NRIs to file an Income-tax return in India?

  • To claim a refund
  • To carry forward a loss

What all is taxable for NRIs in India?

  • Salary received in India or salary for service provided in India, income from a house property situated in India, capital gains on transfer of asset situated in India, income from fixed deposits or interest on a savings bank account are all taxable for an NRI in India.
  • Also, Interest on NRO account is taxable for an NRI.

Also, Read: Income Tax & FEMA Implications on Transfer of Equity Shares.

What is the taxable Income for an NRI?

Following are the incomes which are taxable for an NRI:

Salary Income

If you are an NRI and you receive your salary directly to an Indian account, then it will be subject to Indian tax laws. Whatever salary you earn or receive or anyone else receive on your behalf in India is taxable.

These incomes will be taxed at a rate of specified tax slab limits as per the Indian tax laws. An NRI is liable to be taxed in India if any income is earned from services provided in India. If you are an Indian citizen and your employer is Government of India, then income earned abroad is also taxable in India.

It is to be noted that the income of Indian Diplomats and Ambassadors are exempt from tax liability in India.

House Property Income

Any income generated from house property of an NRI that is located in India is taxable. The procedure for calculation of income tax will be the same as that of a resident’s. It doesn’t matter whether the property is vacant or rented out; an NRI is liable to pay income tax on such property. An NRI is also entitled to claim a 30% standard deduction on house property against home loan interest payment. Also, NRI’s can claim a deduction which includes Stamp duty, registration charges paid to purchase a property against principal repayments under section 80C.

Any kind of rental income received

  • If any kind of rental income is received by an NRI from a tenant, then the tenant must deduct TDS at a rate of 30%. No matter whether the rent is received in NRI’s Indian or foreign account, it would be subjected to TDS.
  • The tenant or the person making the rental payments to an NRI need to submit Form 15CA online.
  • In exceptional cases, Form 15CB also needs to be submitted.
NOTE: Form 15CA is required when the rental payment exceeds INR 50,000 for a single transaction and INR 2, 50,000 per financial year.

However, Form 15CB is not required when rental payment does not exceed the above limits and when lower TDS has been deducted.

Apart from this in the case where lower TDS is deducted, a certificate is needed to receive according to section 197 or such can be done by the order of the Assessing Officer. If the rental payment transaction falls under Rule 37BB of the Income Tax Act, then none of the above forms are required.

Income from Other Sources

  • Income from any other sources in India is taxable for an NRI. For example interest income earned on NRO bank account, fixed deposit, etc.
  • Any interest earned on NRE or Foreign Currency Non-Repatriable account (FCNR) account is not taxable.
  • As a result, as an NRI you need to calculate and sum up all income originated in India or received in India. If an NRI’s total income in India is crossing the income tax threshold limit, then you need to pay Income tax.

Income from Capital Gains

Any capital gain received by an NRI on the transfer of capital asset which is situated in India shall be taxable in India.

  • Capital gains on investments in India in shares will be taxable in India.
  • Capital gains on investments in India insecurities will be taxable in India.
  • If an NRI sells a house property and has a long-term capital gain on it, then the buyer or the purchaser who bought the house property shall deduct TDS at 20%.
GST Registration Online

Income from Business and Profession

In case you have a business establishment in India or have control over it, you are liable to pay tax on any income arising due to such business and profession in India.

Investment Income has a special provision

When an NRI invests the capital in certain Indian assets, he is taxed at 20% by the Government. Any income received from such investment is known as the special income. If the special investment income is the only income the NRI has during the financial year and TDS has already been deducted on that, then such an NRI is not required to file the income tax return.

For more information, contact the best team available at Enterslice

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 are allowed to 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 is allowed to 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.

Conclusion

Well, now that you know the taxable incomes, occasions, you must plan your investments according to the deductions available with you. However, you are mandated by law to file IT returns on time, which requires advanced knowledge and a bit of professional expert advice otherwise be prepared to face penal consequences.

Moreover, Indians who are deputed overseas or have settled overseas, whether by way of acquiring a permanent residency such as a green card in the US, or is planning to acquire citizenship of any foreign country are also required to be well aware of their tax obligations in India.

In case, you also have any query regarding your tax obligations as an NRI, then contact the team of professionals at Enterslice.

Also, Read: Double Taxation Avoidance Agreement for NRI.

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Narendra Kumar

Experienced Finance and Legal Professional with 12+ Years of Experience in Legal, Finance, Fintech, Blockchain, and Revenue Management.

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