People earning outside the home country are liable to pay the NRI Income Tax. There is a lot of difference between the NRI Income-Tax rules and the perks allowed to these NRIs in comparison to the resident Indians. The article contains all the detail related to the NRI Income Tax. Have a look at the details below.
Determining Residential Status
For a financial year, you are regarded as an Indian resident:
- If you spend at least 182 days of the financial year in India (6 months to be exact).
- You spent 60 days (two months) in India the previous year and have resided in India for 365 days (one year) in the preceding four years.
Note: If you are an Indian citizen working overseas or a member of an Indian ship’s crew, you are only eligible for the first criteria, which states that you are a resident after spending at least 182 days in India. A Person of Indian Origin (PIO) on a visit to India is subject to the same rules. The second criteria do not apply to these people.
A Person of Indian Origin is a person who’s any of his grandparents or parents, were native of an undivided India. If you do not match any of the aforementioned criteria, then you come under the NRI category.
For FY 2019-20, if an individual arrives in India on a visit before March 22, 2020, and is:
- Unable to depart due to a lockdown on or before March 31, 2020, the duration of stay from March 22 to March 31 is not counted.
- Was quarantined owing to Covid19 on or after March 1, 2020, and flew out on an evacuation flight on or before March 31, 2020, or was unable to leave India, his duration of stay from the start of quarantine to March 31, 2020, will not be considered.
- Has taken an evacuation flight on or before March 31, 2020, then the length of stay from March 22, 2020 to the date of departure will not be counted.
Taxable Income for an NRI
When you get your salary in India or someone on your behalf of does, it is taxable. As a result, if you are an NRI and your payment is paid directly into an Indian account, you will be subject to Indian tax rules. This income is taxed according to your NRI Income Tax rules bracket.
- Income from Salary
If your services are delivered in India, your salary income will be considered to have originated in India. So, even if you are an NRI, if your income is paid for services rendered in India, it will be taxed in India regardless of where the money is coming from.
Though your employer is the Government of India and you are a citizen of India, your salary income is taxed in India even if your service is performed outside of India.
Note: Diplomats and Ambassadors are exempt from paying taxes on their earnings.
Example: For the past three years, Ravi has been working in China on a project for an Indian company. Ravi needed the money in India to support his family and make payments on a mortgage. However, because Ravi’s salary would have been taxed in India under Indian law, he chose to accept it in China.
- Income from House Property
For an NRI, income from a property located in India is taxable. The income must be calculated in the same way as if the person were a resident. This property may be rented or unoccupied. An NRI can claim a 30 percent standard NRI Income Tax deduction, deduct property taxes, and take advantage of an interest deduction if they have a house loan. A deduction for principal repayment is also available to NRIs under Section 80C. Section 80C allows you to claim stamp duty and registration fees paid on the purchase of a home. House property income is taxed at the corresponding slab rate.
Example: Rashmi owns a house in Goa that she rents out while she is living in Bangkok. She has set up direct deposit of rent payments into her Bangkok bank account. Rashmi’s income from this house, which is located in India, would be taxed there.
- Rental Payments to an NRI
When paying rent to an NRI, tenants must remember to subtract TDS of 30%. The money can be deposited into an Indian account or an NRI’s account in the nation where he is currently staying. Maria pays her NRI landlord Rs30, 000 every month in rent. Before sending the money to the landlord’s account, she must remove 30% TDS, or Rs 9,000. Maria must also complete a Form 15CA and submit it to the Income Tax Department online. Form 15CA must be submitted by anyone sending a remittance (payment) to a Non-Resident Indian. This form must be completed and submitted online.
Before uploading Form 15CA online, you may need a certificate from a chartered accountant in Form 15CB. A CA verifies the payment details, TDS Rate, and TDS deduction as per Section 195 of the Income Tax Act if any DTAA (Double Tax Avoidance Agreement) applies, and other details regarding the nature and purpose of the remittance in Form 15CB. When the following conditions apply, Form 15CB is not required:
- The total amount of remittance is not more than Rs 5, 00,000. (In total in a financial year). In this scenario, only Form 15CA must be submitted.
- If lower TDS must be deducted and a certificate under Section 197 is received for it, or if lower TDS must be deducted by AO order.
- If the transaction comes under Rule 37BB of the Income Tax Act, which contains 28 things, is also not necessary.
- In all other circumstances, if a transfer is made outside of India, the individual making the remittance will obtain a CA’s certificate in Form 15CB and submit Form 15CA through online mode to the govt after receiving the certificate.
- Income from Other Sources
Fixed deposit and savings account interest earned in Indian bank accounts is taxable in India. NRE and FCNR account interest is tax-free. NRO account interest is fully taxed.
- Income from Business and Profession
An NRI’s income from a business controlled or established in India is taxable to the NRI Income Tax.
- Income from Capital Gains
Any capital gain arising from the transfer of a capital asset located in India is taxable India. Capital gains on investments in shares and securities made in India will be taxed in India. If you sell a dwelling with a long-term capital gain, the buyer must deduct TDS at a rate of 20%. You can, however, claim capital gains exemption by investing in a house property as described in Section 54 or capital gain bonds as described in Section 54EC. When a non-resident Indian invests in certain Indian assets, he gets taxed at a rate of 20%. If the NRI’s only source of income during the financial year is special investment income, and TDS has been deducted, the NRI is not obliged to file an income tax return.
- Special Provision Related to Investment Income
When a non-resident Indian invests in certain Indian assets, he gets taxed at a rate of 20%. If the NRI’s only source of income during the financial year is special investment income, and TDS has been deducted, the NRI is not obliged to file an income tax return.
- Investments that Qualify for Special Treatment
Income acquired in foreign currency and derived from the following Indian assets:
- Shares in an Indian company, whether public or private.
- The central government’s security
- Debentures issued by an Indian corporation that is publicly traded (not private)
- When calculating investment income, no deduction under Section 80 is allowed.
- Deposits in banks and public corporations
- Other central government assets listed in the official gazette for this purpose.
- Special Provision Associated with Long-Term Capital Gains
There is no indexation benefit and no Section 80 deductions for long-term capital gains from the sale or transfer of these overseas assets. However, if the profit is reinvested in the following, you can get a tax break under Section 115 F.
- Shares in a corporation based in India
- Debentures issued by a public company in India.
- Bank deposits and Indian large companies.
- Securities issued by the central government.
- NSC VI and VII issues.
If the cost of the new asset is less than the net consideration, capital gains are excluded correspondingly. Keep in mind that if the new asset is transferred or sold back within three years, the profit exempted will be added to the income in the year of sale or transfer.
The above benefits may be available to the NRI even after he or she becomes a resident – until such an asset is converted to money and the NRI submits a declaration to the assessing officer for the application of the special provisions. If the cost of the new asset is less than the net consideration, capital gains are excluded correspondingly. Keep in mind that if the new asset is transferred or sold back within three years, the profit exempted will be added to the income in the year of sale or transfer.
Income Tax Filing for Foreign Nationals
An expatriate in India is a foreigner who lives in the country but is not a citizen.
Deductions and Exemptions for NRIs
NRIs, like residents, are eligible for a variety of deductions and exemptions from their total income. These are the ones that have been discussed:
- Deductions under Section 80C
NRIs are eligible for the majority of Section 80 Deductions. For the fiscal year 2019-20, an individual can deduct up to Rs 1.5 lakhs from their gross total income under Section 80C.
- NRIs are eligible for the following deductions under Section 80C:
- Payment of life insurance premiums: The policy must be in the name of the NRI, their spouse, or any child (child may be dependent or independent, married or unmarried,minor or major). The premium must not exceed 10% of the sum assured.
- ELSS investments have become the most popular option in recent years because they allow you to deduct up to Rs 1.5 lakhs under Section 80C, provide the EEE (Exempt-Exempt-Exempt) benefit to taxpayers, and provide an excellent opportunity to earn because these funds invest primarily in the equity market in a diversified manner.
- Tuition fees for children: Tuition expenses paid to any Indian school, university, college, or other educational institution for the full-time education of any two children (including payments for play school, pre-nursery and nursery).
- Unit-linked insurance plan (ULIPS): ULIPS are marketed with life insurance coverage and are eligible for Section 80C deductions. Contributions to LIC mutual fund unit-linked insurance plans, such as Dhanraksha 1989, and other UTI unit-linked insurance plans are included.
- Principal payments on a mortgage for the purchase of a home: A deduction is allowed for the repayment of a loan used to purchase or construct a residential home. For the purpose of transferring such property to an NRI, stamp duty, registration fees, and other expenses are also authorized.
- Other Allowable Deductions
Apart from the Section 80C deduction, an NRI is also eligible for a number of other deductions under the Income Tax Rules, which have been detailed here:
2. Deduction from House Property Income for NRIs
For a house purchased in India, NRIs can claim all of the deductions granted to residents from income from housing property. There is also a deduction for property taxes paid and interest on a house loan.
3.Deduction under Section 80D
NRIs are entitled to a tax deduction for health insurance premiums paid. This deduction is available up to Rs 30,000 (improved to Rs 50,000 effective from 1 April 2018) for senior persons and up to Rs 25,000 in other cases for insurance of spouse,self, and dependent children.
4. Deduction under Section 80E
NRIs can claim a deduction for interest paid on an education loan under this section. This loan might have been used to fund higher education for the NRI, his or her spouse or children, or for a student over whom the NRI has guardianship. The amount that can be claimed as a deduction under this Section has no limit. The deduction is available for up to eight years or until the interest is paid, whichever comes first. The deduction does not apply to the loan’s principal repayment.
5. Deduction under Section 80G
Section 80G allows NRIs to claim a tax deduction for donations to social causes.
6. Deduction under Section 80TTA
Non-resident Indians, like resident Indians, can claim a deduction on NRI Income Tax from savings bank account interest up to a maximum of Rs 10,000. This is available beginning in FY 2012-13 on deposits in savings accounts (not time deposits) with a bank, co-operative society, or post office.
Deductions Not Allowed to NRIs
Some investments are not permitted under Section 80C:
- PPF investments are not permitted (NRIs are not allowed to open new PPF accounts, however, PPF Accounts which are opened while they are a resident are allowed to be maintained)
- Investing in NSCs
- 5-year deposit scheme at the post office
- Savings plan for senior citizens
Investment under RGESS (Section 80CCG)
In the 2013-14 tax year, a deduction under Section 80CCG, also known as the Rajiv Gandhi Equity Savings Scheme, was implemented. The primary goal of this deduction was to boost retail investor participation in the equity market. The deduction is limited to a minimum of 50 percent of the amount invested in equity shares or Rs 25,000 if certain requirements are met. NRIs are not eligible for this deduction. There will be no deduction under this clause for any assessment year beginning on or after April 1, 2018.
Deduction for the Differently-Abled under Section 80DD
NRIs are not eligible for a deduction under this section for maintenance, which includes medical care for a handicapped dependent (a person with a disability as specified in this Section).
Deduction For Differently-Abled under Section 80DDB
Only residents are eligible for a deduction under this section for medical care for a disabled dependent (as certified by a prescribed specialist).
Deduction for the Differently-Abled under Section 80U
Only resident Indians are eligible for a disability deduction if they themselves have a disability as described by the Section.
Exemption on Sale of Property for an NRI
Long-term capital gains (those earned after owning a property for more than three years) are taxed at a rate of 20%. It’s worth noting that NRIs’ long-term capital gains are subject to a 20% TDS.
NRIs can claim long-term capital gain exemptions under Section 54, Section 54 EC, and Section 54F. As a result, an NRI can take advantage of capital gains exemptions while submitting a return and seek a refund of TDS deducted on capital gains. Long-term capital gains on the sale of a home property are exempt under Section 54. On the sale of any asset other than a residential property, an exemption under Section 54F is allowed.
When capital gains from the sale of the first property are reinvested in particular bonds, an exemption is granted under Section 54EC.
- If you don’t want to put your profit from the sale of your first property into another, you can put it in bonds issued by the National Highway Authority of India (NHAI) or the Rural Electrification Corporation for up to Rs.50 lakhs (REC).
- The homeowner has six months to invest the profit in these bonds, albeit you must invest before the tax filing deadline to qualify for the exemption.
- The money invested can be redeemed after three years, but it cannot be sold before that time has passed. With effect from FY 2018-2019, the three-year period has been extended to five years.
- Beginning in FY 2018-19, the section 54EC capital gain exemption has been limited to capital gains deriving from the transfer of long-term capital assets such as land and buildings or both.
Previously, the exemption was granted on the transfer of any capital asset. To avoid TDS on capital gains, the NRI must make these investments and submit the necessary proof to the buyer. Excess TDS deducted at the time of return filing can also be claimed and refunded by an NRI.
How can NRIs Avoid Paying Double Tax?
NRIs can request relief from the DTAA between the two nations to prevent double taxation (i.e., being taxed twice on the same income in their home country and India). There are two ways to seek NRI Income Tax relief under the DTAA: the exemption technique and the tax credit method. NRIs are taxed in one nation but not in another due to the exemption technique.
How does Tax Apply to you when you are:
Resident Individual on a Temporary Foreign Assignment
Arjun worked in Singapore for four months on a temporary project and was paid in Singaporean dollars throughout that time. This money was deposited into his Indian bank account. He has now returned to his home. What is the best way for him to file his tax return?
Arjun’s taxes for this year will be determined by his residency. Arjun will be regarded a resident because he has not traveled outside of India for more than 182 days. This year, he will be compelled to file his income taxes in India. His compensation earned while on duty in Singapore would also be included.
Arjun’s residential status will change if the assignment lasts more than 182 days, and he will only be liable to pay taxes on the Indian income he has earned thus far. It’s worth noting that overseas earnings credited to an Indian bank account are taxable in India.
Resident Persons Who Recently Moved Abroad
Sham is traveling to the United States for a new assignment. His US earnings are deposited into an NRE account in India. He keeps his FD investments going and has some money in an Indian savings account. His Indian employer has just sent him Form 16. Should he file his taxes in India this year?
If Sham’s income exceeds Rs 2, 50,000, then he must file a tax return, whether an NRI or not.
NRIs are only taxed on income produced or collected in India. As a result, Sham will have to pay taxes on income earned in India as well as income from FDs and savings accounts.
|Sham’s income from India|
|Income From Indian Employer||Rs 3,00,000|
|Bank Account Savings Interest||Rs 4,500|
|Interest Income From Fds||Rs 25,000|
|Gross Total Income||Rs 3,29,500|
|Section 80C – PPF Investments||Rs 20,000|
|Taxable Income||Rs 3,05,000|
|Section 80TTA Exemption||Rs 4,500|
|Cess At 3%||Rs 165|
|Tax Slab At 10%||Rs 5,500|
|TDS Deducted By Bank||Rs 4,500|
|TDS Deducted By Employer||Rs 4,000|
|Tax Refund||Rs 2835|
Living in a Foreign Country
Sidharth has been in the United States for three years. He receives payment in US dollars. In India, he has money invested in a savings account and FDs. He purchased an apartment and rented it for Rs. 35,000 per month. He buys his parents a car and transfers Rs.10, 000 to their account every month to help them pay for their household expenditures throughout the year. He also deposits Rs 20,000 in his father’s account to cover the cost of his parents’ insurance coverage.
Sidharth’s gift to his father and money transfer to his mother of Rs 10,000 are tax-free. Because his father is above 65 years old, Rahul can claim a deduction of Rs 20,000 for his parents’ insurance expenditures under Section 80D. Because his gross income in India exceeds Rs 2, 50,000, he will be compelled to file a tax return.
|Rental Income||Rs 4,20,000|
|Income from house property||Rs 2,94,000|
|Less: Standard 30% deduction under Section 24||Rs 1,26,000|
|Gross total income||Rs 3,24,000|
|Income from FDs and bank account||Rs 30,000|
|Deduction under Section 80D||Rs 20,000|
|Taxable income||Rs 3,04,000|
NRI’s Who Recently Moved Back to India
Returning NRIs are classified as RNORs (Residents, Non-Ordinary Residents):
- If they had been an NRI for 9 of the previous 10 fiscal years.
- You have spent no more than 2 years (729 days) in India in the previous 7 financial years. For a period of two years after their return, the IT Department enables RNORs to continue to benefit from the exemptions granted to NRIs.
A Resident with Global Income
Your global income is taxable in India if you are a resident Indian. This money may have been generated or received outside of India, yet it is subject to Indian taxation. You can take advantage of the DTAA if this income is also taxable in another country (Double Tax Avoidance Agreement).
When income is taxed in both countries, tax relief can be claimed in the nation of residents using the tax credit technique.
When do you become an NRI (non-resident Indian)?
A non-resident of India is someone who is not a citizen of the country (NRI). You are considered a resident if your stay in India for a given financial year is:
- 60 days or moreor182 days ormore and 365 days or more in the four immediately preceding previous years. In case you do not satisfy either of the above conditions, you will be considered as an NRI.
When should an NRI file their income tax return in India?
If an NRI’s gross total income earned in India for any given financial year exceeds Rs 2.5 lakhs, he, like any other individual taxpayer, is required to file a report of income in India. In addition, the deadline for filing an NRI return is 31 July of the assessment year.
I am a non-resident Indian. My rental income comes from a flat I own in India. I am employed in the United States and get a paycheck there. In India, what kind of income should I offer?
Because you are an NRI, only the income you get in India is taxable. You wouldn’t be taxed on your worldwide earnings. As a result, you will be required to pay taxes in India on the rental income from your flat in India.You will not be required to pay any taxes on the salary income you receive from the United States.
I am a 65-year-old NRI. Do I have to file a return if my entire gross income from India throughout the year is Rs 2.8 lakhs?
Only resident senior seniors and resident super senior citizens are eligible for the basic exemptions of Rs 3 lakhs and Rs 5 lakhs. As a result, even if you are a senior citizen, you will be required to file your return if your income in India exceeds Rs 2.5 lakhs.
Is an NRI liable to pay taxes on the income he obtains in India, his home country? What function does the Double Taxation Avoidance Agreements (DTAA) have in this situation?
An NRI who receives money in India is taxable in India on that income, i.e. India has the right to tax such income as a source state. However, as the NRI’s residence state, the country in which he or she lives will have the right to tax such income. The NRI would be taxed twice on the same income as a result of this process.To address this, India has signed DTAAs with a number of nations that help to reduce double taxation by allowing taxpayers to claim credit for foreign taxes paid while filing their tax returns in their home country.
Should taxes be deducted from payments to non-resident Indians?
Specified payments to an NRI, such as professional or technical fees, rent, etc., require the individual making the payment to deduct tax at source. In order to deduct taxes at the source, the individual must obtain a TAN. Payments to non-residents additionally require Form 15CA (must be filed by the person making the payment) and Form 15CB (to be received from a Chartered Accountant).
I am a non-resident Indian. Will I have to pay capital gains tax if I sell a flat in India that I own?
Yes. When you sell your flat in India, you will be subject to capital gains tax. Furthermore, the buyer must deduct taxes on the amount of profit you make. If the asset is a long-term asset, the tax deduction rate is 20%, but taxes at slab rates are deducted at the source if the asset is a short-term asset.