Taxation for non-resident Indians (NRIs ) in India is subject to specific rules and regulations defined by the Income Tax Act of 1961. NRIs are individuals of Indian origin living abroad, who may have income earned both within and outside India. Understanding the taxation guidelines and benefits available to NRIs is essential for effective tax planning.
In this article, we will delve into the various aspects of NRI taxation in India, including key rules, exemptions, deductions, and other important considerations. By understanding these intricacies, you can navigate the complex landscape of NRI taxation with confidence.
Residential Status and Tax Liability
To determine an individual's tax liability in India, their residential status plays a crucial role. According to Indian tax laws, you are considered an Indian resident if
- You have spent 182 days or more in India during the financial year.
- You have spent at least 60 days in India in the previous year, and a total of at least 365 days during the four years preceding that 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 Resident but not ordinary resident (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.
Taxable Income
NRIs do not pay tax on income earned abroad but are liable to pay taxes on certain types of income earned within India, if it exceeds the basic exemption limit. Taxable income for NRIs includes capital gains from investments, property rentals, term deposit interest received from banks or post offices, etc.
TDS (Tax Deducted at Source)
In most cases, incomes from sources based in India are subject to tax deduction at source (TDS), regardless of any threshold value. The highest rate of TDS is generally applied to interest earned from term deposits, shares, and mutual funds in India. NRI or not, any individual whose income exceeds Rs. 2,50,000/- is required to file an income tax return in India.
Double Taxation Avoidance Agreement (DTAA)
The Double Taxation Avoidance Agreement (DTAA) provides a way to avoid double taxation on income you earn both in India and your country of residence. DTAA allows taxpayers to claim tax credit or exemptions based on agreements between countries.
Income Tax Slabs
Unlike resident Indians, who have different income tax slabs based on gender and age criteria, NRI income tax slabs are based solely on income, without any other specifications. NRI or not, any individual whose income exceeds Rs 2,50,000(AY 2023-24) is required to file an income tax return in India.
Deductions and Exemptions
As an NRI, you can avail deductions under various sections of the Income Tax Act:
Section 80C
You can claim deductions for life insurance premium payments, tuition fee payments, principal repayment on home loans, etc., up to the maximum limit allowed by law.
Section 80D
You can claim deductions for health insurance premiums paid for yourself, family members, and parents subject to certain conditions and limits defined by the section.
Section 80E
This section allows deductions for interest paid on education loans taken for higher education for yourself, your spouse, children, or dependent students, without any cap on the interest amount.
Section 80G
As an NRI, you can claim deductions if you have made donations to eligible institutions, as specified in this section.
Section 80TTA
As an NRI, you are allowed deductions up to a maximum limit on interest earned on savings bank accounts.
Other exemptions on income
NRIs are eligible for additional tax exemptions on various types of income. These include:
- Interest earned on government-issued savings certificates and notified bonds,
- Dividends earned from shares of domestic Indian companies,
- Interest earned on NRE/FCNR accounts, and
- Long-term capital gains on listed equity shares and equity-oriented mutual funds, if the proceeds are reinvested into eligible assets within specified time frames.
Taxation Rules Specific to NRIs
Certain provisions apply specifically to the taxation of NRIs in India. These include:
Computation of Tax (Section 115D)
No deductions are allowed on investment income or long-term capital gains if the assesses is an NRI.
Tax on Income from Investment and Long-Term Capital Gains (Section 115E)
If an NRI's total income includes investment income or long-term capital gains from specified assets in India, the tax payable will be calculated at specific rates.
Non-Chargeable Capital Gains on Transfer of Foreign Exchange Assets (Section 115F)
Certain exceptions apply when transferring foreign exchange assets to India, which may not incur tax liability based on specific conditions.
Non-Filing of Returns in Specific Cases (Section 115G)
In cases where your total income as an NRI consists only of investment income or long-term capital gains and TDS has been deducted, filing a tax return may not be required.
Benefits of Taxation After Becoming a Resident (Section 115H)
If you were an NRI in the previous year and became a resident in any subsequent year, your return of income from foreign exchange assets needs to be declared, until the asset is converted into monetary value.
Non-Application of Provisions for NRI Taxation (Section 115I)
As an NRI, you have the option to choose whether your income should be considered from investment or capital gains.
Filing Tax Returns as an NRI
NRIs are required to file income tax returns in India if their total income exceeds Rs. 2,50,000 during the financial year. Even though certain incomes may not be taxable due to TDS deducted at source, filing a return becomes necessary to claim refunds or exemptions. Online portals of the Income Tax Department of India offer an easy and preferred way for NRIs to file their tax returns.
Tax-Saving Tata AIA Insurance Policies
Tata AIA offers a range of insurance policies designed specifically for NRIs looking for financial security and tax benefits*. Some notable policies offering tax exemptions include:
Conclusion
Understanding taxation rules and benefits is crucial if you are an NRI. The Income Tax Act defines specific guidelines regarding residential status determination and tax liability based on various types of income earned within India. You can gain tax exemptions, deductions, and benefits by ensuring compliance with relevant sections of the act. It's important to stay updated with changing rules and regulations related to NRI taxation.
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