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A person may have multiple income sources, and he may be subject to taxes* for those in our country. The usual heads under which a person is eligible to pay tax in India are; ‘Income from Salary,’ ‘Income from Capital Gains,’ ‘Income from House Property,’ and ‘Income from Business or Profession.’
All other kinds of incomes that are not covered under these 4 heads fall under the category of ‘Income from Other Sources.’ The other sources here primarily comprise income earned on savings and investments, like interest earned on a bank savings account or a fixed deposit scheme and dividends earned on investments made in India.
The interest and dividend tax for NRIs is different from those for a resident Indian. Therefore, if you are an NRI, you must know how income from other sources is taxed for NRIs in the country and if you can buy an NRI insurance policy for tax savings.
Who is an NRI?
A Non-Resident Indian (NRI) is an individual of Indian origin who lives outside India for various reasons - personal, business, employment, education, etc.
The term "Non-Resident" refers to the fact that these individuals do not reside in India on a permanent basis. They may hold Indian citizenship or another country's citizenship. NRIs typically hold Indian citizenship or are of Indian origin but have obtained citizenship of another country.
The Indian Income Tax Act defines NRIs based on the duration of their stay in India.
Typically, an NRI stays in India for less than 182 days during a financial year or has been outside India for a total of 365 days or more in the preceding four financial years.
NRIs maintain connections to India and contribute to the economy through remittances, investments, and cultural activities. Therefore, there are clear provisions for the taxability of NRIs in India.
Interest and Dividend Tax Rate in India for NRIs
Now that we have a clear understanding of who is an NRI let us see the interest and dividend tax rate for them.
Tax on Interest from Fixed Deposits and Bank Accounts for NRIs
An NRI can have these bank savings accounts in India:
Non-Resident External (NRE) account: Indian currency-denominated account for parking foreign currency in the country
Non-Resident Ordinary (NRO) account: Indian currency-denominated account for managing income earned in India
Foreign Currency Non-resident (FCNR) account: Foreign currency-denominated account to manage income earned outside the country in foreign currency
The interest you earn on an NRE and an FCNR account is tax-free in India. On the other hand, the interest you earn on an NRO account is fully taxable. It is taxed according to the applicable tax rates and is also subject to tax deductions by the bank.
Additionally, India has a Double Taxation Avoidance Agreement (DTAA) with some countries. If you are an NRI residing in one of these countries, you will be taxed either under the provisions of the DTAA or the Income Tax Act, whichever is more beneficial for you.
Tax on Dividends for NRIs
If an NRI earns a dividend on an investment made in shares of an Indian company or in mutual funds, it is taxable in India. Such an income is subject to 20% tax plus any applicable surcharge and cess without providing for any deduction under Chapter VI-A of the act such as investments made in Public Provident Funds, life insurance premiums, national pension schemes, etc.,
If a balanced tax remains unpaid after tax deductions, the NRI can pay an advanced or self-assessment tax before filing an income tax return in the country. Moreover, a delay in filing the advanced tax or a self-assessment tax will attract interest for late payments.
The dividend tax rate for NRIs under the income tax provisions is as follows:
Residential Status |
Type of Shareholding |
Other Conditions |
Base Rate (%) |
Surcharge (%) |
HEC (%) |
Effective TDS (%) |
NRIs |
Any |
Dividends for Bonds and other Government |
10 |
4 |
10.400 |
|
FIIs/FPIs |
20 |
4 |
20.800 |
|||
Company |
Up to ₹1 Crore |
20 |
4 |
20.800 |
||
₹1 Crore to ₹10 Crore |
20 |
2 |
4 |
21.216 |
||
Beyond ₹10 Crore |
20 |
5 |
4 |
21.840 |
||
Other than the above |
Up to ₹50 Lakhs |
20 |
4 |
20.800 |
||
₹50 Lakhs to ₹1 Crore |
20 |
10 |
4 |
22.880 |
||
Beyond ₹1 Crore |
20 |
15 |
4 |
23.920 |
Disclosing Income in the ITR Form
Along with paying the correct tax, you must also disclose it correctly under the schedule of the ITR form so that there is no confusion and unnecessary notices from the ITR department.
The dividend income should be disclosed under the column ‘Income Chargeable at Special Rates,’ while income taxed under the DTAA should be mentioned under the ‘Special Income’ schedule. Moreover, even if the income is exempt from tax, it should be disclosed under the ‘Exempt Income’ schedule to comply with the disclosure rules.
Tax-Saving with NRI Life Insurance Plans from Tata AIA
NRIs looking for tax-saving investment options can opt for our Tata AIA life insurance policy plans for NRIs. Our NRI insurance plans provide insurance coverage along with tax benefits to NRIs. You can buy your policy or file a claim seamlessly via quick and hassle-free online processes.
You can also make use of our various online calculators to plan your finances and find the best life insurance policy for your needs.
Wrapping Up
There are exclusive provisions in India for NRI taxpayers under the Income Tax Act and the DTAA. Therefore, it is essential to understand the provisions for taxation of interest earned on bank accounts and fixed deposits and the dividend earned on shares and mutual funds.
Filing the right amount of tax under the correct schedule in the ITR form helps you avoid unnecessary notices and queries from ITR officials.
