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Income Tax New Rules for NRIs In India

The Income Tax Act in India covers all eligible Indian residents under its regime. Additionally, it also covers Non-Resident Indians (NRIs) for tax filing. 
 

The income you earn abroad is not taxable in India. However, as an NRI, you must pay tax* on capital gains from mutual funds, term deposits, property rentals, and shares according to the tab slab you fall in. Moreover, these rules are dynamic and change from time to time. 
 

Therefore, to avoid non-compliance, you must understand the new income tax rules for NRIs in India.

Who is an NRI?

Before looking at the new income tax rules for Non-Resident Indians, it is necessary to understand who an NRI is. 
 

NRI, or Non-Resident Indian, is an Indian citizen who resides outside India for various reasons, such as employment, education, business, or other purposes. NRI status is determined based on the individual's physical presence in India during a financial year.
 

In general, the Government of India defines an NRI as someone who meets any of the following criteria:
 

  1. An individual who has stayed in India for less than 182 days during the preceding financial year.

  2. An individual who has been outside India for a total of 365 days or more during the preceding four financial years and less than 60 days in the current financial year.

NRIs enjoy certain privileges and face specific restrictions regarding taxation, investment, and other legal matters.

Latest Income Tax Rules for NRIs

The taxation rules for NRIs are not the same as those for resident Indians. Here are some essentials of the income tax rules for NRIs:
 

  • Income tax slabs for NRIs are based only on income. They do not depend on the gender, age, or other specification of the individual.

  • All incomes of NRIs are charged irrespective of any threshold value for TDS.

  • Nominal deductions are not applicable on investment income, except under specific situations.

  • NRIs usually need not file taxes if the income is subject to clauses under Section 115G of the Income Tax Act.

Tax Exemptions for NRIs

Under the new tax rule for NRIs, some tax exemptions exist in the Income Tax Act.
 

  • The interest you earn on an NRE (Non-resident External) or FCNR (Foreign Currency Non-resident) account. 

  • The interest you earn on notified bonds and savings certificates issued by the government. 

  • Long-term capital gains from listed equity shares and equity-oriented mutual funds. 

  • (Dividend is Taxable for NRI)

  • Capital gain can be exempted under the following conditions:
     

    1. If a house property held for more than 24 months is sold, and the proceeds (or a part of the proceeds) are used to purchase another property or deposited in a PSU or other banks as per the Capital Gains Account Scheme of 1988.

    2. Any property other than a house Property is sold and capital gains are incurred, capital gain exemption can be availed on the construction or purchase of a new house in proportion to the investment of Net consideration.

    3. Long-term capital gains from the immovable property invested in 54EC bonds like National Highway Authority of India and Rural Electrification Corporation etc.These bonds can be redeemed only after 5 years. Exemption is available up to a maximum amount of Rs. 50 lakh.

Tax Deductions for NRIs

NRIs can avail of tax deductions in the Income Tax Act under various sections:
 

Deductions Under Section 80C

  • Deduction on NRI life insurance premium if the premium is less than 10% of the sum assured and the insured is an NRI, their spouse, or child.

  • Deduction on the tuition fee paid to an educational institution in India for the full-time education of a maximum of 2 children.

  • Deduction on the principal payment on a loan for purchasing a house. 

  • Deduction on investment in ULIPs#

  • Deduction for interest paid on a housing loan for a vacant house.
     

Deductions Under Section 80D

  • Deduction on the premium of health insurance for immediate family and dependents and preventive health check-ups  as per the limits.
     

Deductions Under Section 80E

  • Deduction on interest paid for the education loan for the higher education (of self, spouse, children, or dependent student). This deduction is subject to a maximum period of 8 years or till the interest is paid, whichever ends earlier.
     

Deductions Under Section 80G

  • Deduction on appropriate donations made according to the provisions of Section 80G of the Income Tax Act.
     

Deductions Under Section 80TTA

  • Deductions on the interest you earn on a savings bank account (maximum ₹10,000).

How Can I Avoid Double Taxation as an NRI?

As an NRI, you have the facility of avoiding double taxation in your present country of residence and India simultaneously. There is a provision for it under the Double Taxation Avoidance Agreement (DTAA) that India has with some other countries. 
 

You can claim tax relief in 2 ways under the DTAA. These are the exemption method and the tax credit method. Under the exemption method, an NRI is taxed in only one country and exempted in the other. On the other hand, under the tax credit method, the NRI is taxed in both countries but gets tax relief in his present country of residence.

Can NRIs Save Income Tax in India with NRI Life Insurance Plans?

Yes, NRIs can potentially save income tax in India by investing in NRI life insurance plans. NRI life insurance plans are designed specifically for non-resident Indians and offer several benefits, including tax benefits. 

Here's how NRIs can save income tax by buying life insurance plans:
 

  • Deduction under Section 80C: NRIs can claim a deduction of up to ₹1.5 lakhs under Section 80C of the Income Tax Act, 1961, for the premium paid towards NRI life insurance plans. 

  • Tax-exempt proceeds: The maturity amount or death benefit received from an NRI life insurance plan is tax-exempt under Section 10(10D) of the Income Tax Act. 

With Tata AIA life insurance policies for NRIs, you can enjoy a sum assured along with tax benefits on your investment. Our NRI life insurance plans support you in taking care of your dependents, even when you are away from your home in a foreign land. 
 

However, it's important to note that tax laws can change, and it's advisable to consult with a tax advisor or financial professional who can provide up-to-date and personalised guidance based on your specific financial situation, country of residence and circumstances.

The Final Word

NRIs are covered under the Income Tax Act in India. However, the taxation rules for NRIs are different from those for resident Indians. Therefore, it is essential to understand the latest tax provisions for NRIs in the country to avoid non-compliance.

Your Life, Your Legacy: Life Insurance Inquiry for Indians Abroad

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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FAQs

When should an NRI file income tax in India?

Similar to resident Indians, NRIs should also file income tax in India if the total gross income they receive in India exceeds ₹2.5 lakhs in the concerned financial year. The due date for filing an income tax return for an NRI in India is 31st  July unless extended by the government.

I am a 67-year-old NRI with a gross annual income of ₹2.9 lakhs from India for this financial year. Will I have to file an income tax return in India?

The income tax provisions for NRIs are not subject to age, gender, or any other specification. Therefore, you will have to pay the necessary tax for the income earned in India beyond ₹2.5 lakhs.

Disclaimer

  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.

  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  • Tax: *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.

  • IN THIS POLICY, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER

  • THE LINKED INSURANCE PRODUCT DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICY HOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR.

  • Past performance is not indicative of future performance.

  • All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.

  • Please make your own independent decision after consulting your financial or other professional advisor.