We all know that taxes collected from citizens are the foundation of the Indian economy. NRI taxation under the Indian Income Tax Act, 1961 applies to those earning income outside the home country. The income tax rules and perks allowed to them are drastically different from those applicable to resident Indians.
NRI definition as per Income Tax Act, a Non-resident Indian (NRI) is someone who isn’t physically present in India enough to be considered a resident for tax purposes. This is determined by an individual stay in India during a financial year (182 days or more makes him a resident) or over the past four years (60 days or more in a year and 365 days or more total).
You are considered an Indian resident for a financial year if you satisfy any of the conditions below:
Note: If you are an Indian citizen working abroad or a crew member on an Indian ship, only the first condition is available to you – which means you are a resident when you spend at least 182 days in India.
The same applies to a Person of Indian Origin (PIO) who visits India during the previous year and whose total income (excluding foreign sources) is less than or equal to 15 lakhs. The second condition does not apply to these individuals. A PIO is a person whose parents or any of his grandparents were born in undivided India.
If you do not meet any of the above conditions, you are a Non-Resident Indian.
Resident but Not-Ordinary Resident (RNOR) definition amended :-
Individuals will be considered as RNOR for the year if they meet the following conditions:-
Note: The Finance Act 2020 has amended the residency provisions to include Indian Citizen/Person of Indian Origin, who comes to visit India and shall now be considered as RNOR subject to the following conditions:
Before this amendment, such individuals were classified as non-residents. Due to the amendment mentioned above, the individual’s residential status may be classified as RNOR, which will lead to loss of DTAA benefits, increased scope of total income for taxability, loss of various exemptions allowed, etc.
It is to be further noted that in the above amendment, an individual staying for more than 182 days shall be classified as a resident irrespective of the level of income in the previous year.
Deemed residency status introduced in Finance Act 2020 :-
Finance Act 2020 introduced the concept of ‘Deemed residency’. According to this, Citizens of India earning more than Rs 15 lakh from Indian sources shall be deemed a resident of India if they are not liable for payment of taxes in any other country.
The deemed residents shall be classified as RNOR with effect from the financial year 2020-21. This amendment was brought into force to tax the incomes of Indian citizens who are not liable to pay tax in any country.
For FY 2019-20, if individuals have come to India on a visit before 22nd March 2020 and they are:
Yes, an NRI has to file an income tax return in India on income earned in India. NRIs have to pay tax on income that accrues or arises in India. NRIs also need to pay tax on income that is deemed to accrue or arise in India. Money received or deemed to be received in India is taxable. It's essential for NRIs to comply with tax regulations in India, and seeking assistance from tax experts can certainly simplify the process.
NRIs are taxed on specific incomes earned in India:
When you receive it in India, your salary income is taxable, or someone does it on your behalf. Therefore, if you are an NRI and receive your salary directly to an Indian account, it will be subject to Indian tax laws. This income is taxed at the slab rate you belong to.
Income from salary will be considered to arise in India if your services are rendered in India.
So even though you may be an NRI, if your salary is paid towards services you provide in India, it shall be taxed in India immaterial of the place where you are receiving the income.
Suppose your employer is the Government of India and you are a citizen of India. In that case, if your service is rendered outside India, your income from salary shall be taxable in India.
Note that the income of Diplomats and Ambassadors are exempt from tax. For instance, Ajay was working in China on a project from an Indian company for 3 years. Ajay needed the salary in India to take care of his family’s needs and make payments towards a housing loan. However, since the salary received by Ajay in India would have been taxed as per Indian laws, Ajay decided to receive it in China.
Income from a property that is situated in India is taxable in the hands of an NRI.
The calculation of such income shall be in the same manner as applicable to a resident. This property may be rented out or lying vacant. An NRI can claim a standard deduction of 30%, deduct property taxes, and benefit from an interest deduction from a home loan. The NRI is also allowed a deduction for principal repayment under Section 80C. Stamp duty and registration charges paid on purchasing a property can also be claimed under Section 80C.
Income from house property is taxed at slab rates as applicable.
For instance, Nandini owns a house property in Goa and has rented it out while she lives in Bangkok. She has set up the rent payments to be received directly in her bank account in Bangkok. Nandini’s income from this house which is located in India, shall be taxable in India.
A tenant who pays rent to an NRI owner must remember to deduct TDS at 30% while paying rent.
The income can be received to an account in India or the NRI’s account in the country they are currently residing in.
(For instance, Maria pays a monthly rent of Rs 30,000 to her NRI landlord. She must deduct 30% TDS or Rs 9,000 before transferring the money to the landlord’s account. Maria must also get a Form 15CA prepared and submit it online to the income tax department. A person making a remittance (a payment) to a Non-Resident Indian has to submit Form 15CA. This form has to be submitted online. In some cases, a certificate from a chartered accountant in Form 15CB is required before uploading Form 15CA online. In Form 15CB, a CA certifies details of the payment, TDS rate, and TDS deduction as per Section 195 of the Income Tax Act, any DTAA (Double Tax Avoidance Agreement) applicable, and other details of nature and purpose of the remittance.)
Form 15CB is not required when:
In all other cases, if there is a remittance outside India, the person asking for the remittance should take a CA’s certificate in Form 15CB. After receiving the certificate, submit Form 15CA to the government online.
Interest income from fixed deposits and savings accounts held in Indian bank accounts is taxable in India. Interest on NRE and FCNR accounts is tax-free. Interest on NRO accounts is fully taxable.
Any income earned by an NRI from a business controlled or set up in India is taxable to the NRI.
Any capital gain on transfer of capital asset which is situated in India shall be taxable in India.
Capital gains on investments in Indian shares, securities shall also be taxable in India. If you sell a house property and have a long-term capital gain, the buyer shall deduct TDS at 20%. However, you can claim capital gains exemption by investing in a house property as per Section 54 or investing in capital gain bonds as per Section 54EC.
When NRIs invest in certain Indian assets, they are taxed at 20% on the income earned. If the special investment income is the only income the NRI has during the financial year and TDS has been deducted, then such an NRI is not required to file an income tax return.
Similar to residents, NRIs are also entitled to claim various deductions and exemptions from their total income. These have been discussed here:
Most of the deductions under Section 80 are also available to NRIs. For FY 2023-24, a maximum deduction of up to Rs 1.5 lakh is allowed under Section 80C from gross total income for an individual.
Besides the deduction that an NRI can claim under Section 80C, they are also eligible to claim various other deductions under the income tax laws, which have been discussed here:
NRIs can claim all the deductions available to a resident, including parents’ insurance deductions from income from house property for a house property purchased in India. Deduction towards property tax paid and interest on home loan deduction is also allowed.
NRIs are allowed to claim a deduction for the premium paid for health insurance. This deduction is available up to Rs 25,000 in the case for insurance of self, spouse, and dependent children. In addition, an NRI can also claim a deduction for parents’ insurance (father or mother or both) up to Rs 25,000.
However, the deduction limit is set up to Rs 50,000 if the insurance premium is paid for resident senior citizens (self, family and parents). Hence, insurance premium paid for senior citizen NRIs cannot be claimed under Section 80D.
Within the existing limits allowed, a deduction of up to Rs 5,000 for preventive health check-ups are also available. Moreover, medical expenditure of up to Rs 50,000 incurred for resident senior citizens can also be claimed within the existing limits of Section 80D. However, the person on whom the medical expenditure is incurred should not be covered under any health insurance policy.
Under this section, NRIs can claim a deduction of interest paid on an education loan.
This loan may have been taken for higher education for the NRI, NRI’s spouse, children, or a student for whom the NRI is a legal guardian.
There is no limit on the amount which can be claimed as a deduction under this section. The deduction is available for a maximum of eight years or till the interest is paid, whichever is earlier. The deduction is not available on the principal repayment of the loan.
NRIs are allowed to claim a deduction for donations for social causes under Section 80G.
Non-resident Indians can claim a deduction on income from interest on savings bank accounts up to a maximum of Rs 10,000 like resident Indians.
This is allowed on deposits in savings accounts (not time deposits) with a bank, co-operative society or post office and is available starting FY 2012-13.
Deduction under this section is for maintenance, including medical treatment, of a handicapped dependent (a person with a disability as defined in this section). Such deduction is not available to NRIs.
Deduction under this section towards medical treatment of a dependent who is disabled (as certified by a prescribed specialist) is available only to residents.
Deduction for disability where the taxpayer himself has a disability as defined in the section is allowed only to resident Indians.
Note: The maximum surcharge shall be 25% under the new tax regime.
The rebate under section 87A is not allowed to a Non-resident under both the regimes
The last date to file ITR for FY (2023-24) AY (2024-25) is 31st July 2024.
Filing Income Tax Return timely offers these benefits to NRIs:-
Yes. Even Non-Resident Indians come under the ambit of Advance tax. Advance tax is paid in the financial year/previous year on the basis of estimated tax liability for the year. If the tax liability is higher than Rs.10,000 then the assessee is required to pay his advance tax liability in four installments as mentioned in the Act.
In case of failure to pay advance tax on the specified due dates or on payment of less advance tax than the actual tax liability, interest under Section 234B & Section 234C is levied on the taxpayer.
follow us on - @thetaxfirm.co.in , @thetaxfirm.insider , @thetaxfirm.inhindi
whatsapp channel :- https://whatsapp.com/channel/0029VavmAPu7tkjAj6VlYd1g