IntroductionFor an NRI, understanding the intricacies of filing income tax returns in India is crucial. Being aware of your tax obligations and entitlements ensures compliance with the law and can help you make informed financial decisions. In this guide, we will provide you with comprehensive information on NRI income tax returns. From determining your NRI status to taxable incomes, advance tax payments, and specific deductions available to NRIs, we will cover all the essential details. Additionally, we will shed light on the tax implications of life insurance payouts for NRIs. Read on to gain a deeper understanding of NRI income taxation.
Laws governing NRI status
The two main laws that govern and prescribe the rules for NRIs in India are as follows:
Income Tax Act - Governs the tax liabilities of NRIs
Foreign Exchange and Management Act (FEMA) - Governs all transactions and investments, the opening of bank accounts, etc., of NRIs
The definition of NRI is different under these acts. In this article, we have covered the definition of NRIs under the Income Tax Act, 1961.
Determining Your NRI Status for Income Tax Purposes
Who is RESIDENT in India?
A person would be a RESIDENT of India for income tax purposes if-
He/she is in India for 182 days or more during the financial year.
OR
If he/she is in India for at least 365 days during the 4 years preceding that year AND at least 60 days in that year.
Note: These days may be a single visit or counted over many visits to India.
Who is NON-RESIDENT in India?
If you do not satisfy the condition laid out above - you will be considered a NON-RESIDENT INDIAN (NRI). Thus, if you stay in India below 182 days, you will be considered as an NRI.
In case you are an Indian citizen, and you leave India for employment outside of India, or as a member of the crew on an Indian ship, your status will be a Non-Resident Indian (NRI) if you stay in India in the previous year for more than 182 days. Thus, if you are an Indian citizen or a person of Indian Origin, and you live outside India for 182 days or above, you will be an NRI.
Deemed resident status
Irrespective of the conditions listed above for being a resident, there is also a concept of deemed resident.
Deemed residency status introduced in Finance Act 2020
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:
- Total income other than foreign income is Rs 15 lakh or more
- The individual has stayed in India for more than 120 days but less than 182 days in the previous year
- The individual has stayed in India for 365 days or more in four years preceding the previous year
The Finance Act, 2020 has also introduced new Section 6(1A) which is applicable from Assessment Year 2021-22. It provides than an Indian citizen earning Total Income in excess of ₹ 15 lakh (other than income from foreign sources) shall be deemed to be Resident in India if he / she is not liable to pay tax in any country.
Taxable Incomes for NRIs
NRIs are liable to pay taxes only on their Indian source incomes; foreign sources of income remain exempt from taxation in India. Some examples of taxable incomes include:
- Interest from savings accounts or fixed deposits (other than NRE FD) held in India.
- Rental income earned from property situated in India.
- Capital gains on transfer of asset situated in India.
- Income from transfer of shares of Indian Companies.
It is essential to note that income from foreign sources, such as the salary you earn abroad as an NRI, is not subject to taxation in India.
Filing Income Tax Returns as an NRI
NRIs are required to file income tax returns if their Indian source income exceeds the basic exemption limit of INR 250,000(For AY 2023-24). However, even if your income falls below this threshold, there are benefits to filing income tax returns. By doing so, you can claim refunds on TDS credits and regularise your financial records. The due date for NRIs to file their income tax returns is July 31st of the year following the financial year end.
Advance Tax Payments for NRIs
Any individual with a tax liability exceeding INR 10,000 must pay advance tax. This requirement applies to NRIs as well. It is important not to default on advance tax payments or face interest charges.
Specific Incomes and Tax Implications for NRIs
Income from Salary
Any salary earned by an NRI directly into an Indian bank account, or through someone else on their behalf, is taxable in India. Additionally, any income earned for services rendered within India will also be considered taxable.
Income from House Property
Rental income received from a property situated in India is taxable for NRIs. The person paying rent must deduct TDS at a rate of 30% without any threshold limit.
Income from Capital Gains
Income generated from the sale of capital assets located in India, such as land, building, or shares, is taxable for NRIs. The taxability varies based on the holding period and type of asset (long-term or short-term).
Income from Business and Profession
All forms of business and professional incomes generated by an NRI through setup or control in India are taxable.
Applicable TDS while paying to an NRI as per Section 195 (income tax Act)
Any person paying to a non-resident should deduct income tax at there on at the rates in force
The TDS rates given under the Finance Act 2023 are as follows: |
Rates |
Income from the investment made by an NRI (Interest/Dividend) |
20% |
Long-term capital gains arising from the transfer of the following assets as per Section 115E: |
10% |
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Long-term capital gain from listed shares and securities referred to in Section 112A |
10% |
Any other long-term capital gain |
20% |
Short-term capital gains under section 111A |
15% |
Interest payable by the Government or an Indian concern on the money borrowed in foreign currency |
20% |
Royalty and Fees for technical services payable by the Government or an Indian concern |
20% |
Winnings from: |
30% |
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Any other income |
30% |
Deductions Available to NRIs
Similar to residents, NRIs can claim deductions under various sections of the Income Tax Act. Some popular deductions include Section 80C for life insurance premium payments and Section 80D for health insurance premiums. However, Investment in PPF, NSC, Post office 5-year deposit scheme and Senior Citizen Savings Scheme are not allowed (NRIs are not allowed to open new PPF accounts. However, PPF accounts that are opened while they are a resident are allowed to be maintained)
Taxability of Life Insurance Payouts
Certain life insurance policies offer tax benefits* under Section 10(10D) and Section 80C of the Income Tax Act. Premium payments towards life insurance policies are eligible for tax deductions, and death/maturity benefits received are exempt from tax. However, it is important to note that term life insurance policies only provide tax benefits on death benefits, since there are no maturity benefits unless accompanied by a return of premium rider.
Insurance Eligibility and Products for NRIs
NRIs, OCIs/PIOs (Overseas Citizens of India/Persons of Indian Origin), and Foreign Nationals can purchase life insurance policies in India. Tata AIA Life Insurance offers various products suitable for NRIs, including insurance plans such as Tata AIA Sampoorna Raksha Supreme, Tata AIA Fortune Guarantee Plus and others. These plans provide financial protection, a regular income, tax benefits, and options for the return of premium. Click here to know more about our plans.
Conclusion
To fulfil your financial obligations while maximising your savings potential in India, it is important to understand NRI income taxation. By determining your NRI status accurately, filing income tax returns when necessary, making advance tax payments diligently if applicable, and capitalising on available deductions, you can effectively manage your taxes as an NRI. Additionally, being aware of the tax implications related to specific types of income, such as salary or rental earnings, allows you to plan your finances wisely.
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