Non-Resident Indians can open different types of NRI accounts in India - Non-Resident External (NRE) account, Non-Resident Ordinary (NRO) account and Foreign Currency Non-Resident (FCNR) account - to deposit their money earned within India or abroad. However, for any income earned in India, NRIs need to have an NRO account. NRIs are liable to pay taxes on income deposited in an NRO account in India. Let’s understand the tax on an NRO account.
NRI Income Tax
A Non-Resident Indian (NRI) has to pay and not pay certain taxes. It can be confusing while sorting the various taxation aspects to the right column. Before we get into the details of NRI Income Tax, it is essential that we understand the actual definition of NRI as per the Income Tax Act, 1961.
Definition of NRI as per Income Tax Act, 1961
Income tax doesn’t provide any direct definition for Non Resident Indians (NRIs) but it lays down certain criterias to certify citizens as residents of India:
According to Income Tax regulations, a citizen will be a resident of India in the previous year, if:
- He/she is in India for at least 182 days in that year, OR
- If the individual was not in India for at least 182 days in the previous year but he/she was in India for at least 365 days during the last 4 years to that year and at least 60 days during that year
Case 1: Consider you were in India for 207 days in 2019, then you are a resident of India for 2019.
Case 2: Say, you were in India for 70 days in 2019, then you fail the first criteria! But you were in India during the entire time span of 2014-2018. Then you are a resident of India in spite of not being in the country for at least 182 days in 2019.
The individuals not satisfying the two cases mentioned above will be treated as Non-Resident Indians (NRIs) according to the Income Tax Regulations.
There has been an amendment in the definition of NRI as per IT Act which is already in effect from 1st of April 2020, let’s understand that as well:
Amendment in the Definition of NRI as per Income Tax
The Income Tax Act amendment of 2020 is for NRIs whose taxable income in India exceeds Rs. 15 Lakhs, The amended criteria are as follows:
- If the individual is in India for at least 120 days (compared to the previous 182 days threshold) in the previous year, then
- We calculate whether he/she was in India for at least 365 days during the last 4 years to that year
If the criteria is satisfied, they become Residents.
Now, the Residential Status of an Individual defines what taxes will they pay in India. NRI Income Tax is deducted on the basis of your income. Let’s understand this:
- If you are an Indian Resident, then your global income is taxable in India
- If you are a Non-Resident Indian (NRI), then only the income generated in India is taxable
DTAA (Double Tax Avoidance Agreement): Avoid Paying double taxes
DTAA (Double Tax Avoidance Agreement) is a treaty between countries to avoid paying double taxes. If you have already paid the taxes in India then you don’t need to pay taxes in your country of residence. There can be a difference in tax slabs though. Under such conditions, you pay the residual taxes in your country of residence. For example: If you had to pay 20% tax in the USA and the same income was taxed at 15% in India in the form of TDS defined under DTAA with the USA, then you have to pay the remaining 5% tax in the USA. Also, people generating income from countries in the Gulf region where no income taxes are applicable, don’t have to pay any taxes in India.
There are various documents required to avail the benefits under DTAA, which are:
- Self-declaration cum indemnity format
- Self-attested PAN card copy
- Self-attested visa and passport copy
- PIO proof copy (if applicable)
- Tax Residency Certificate (TRC)
Note: According to the Finance Act 2013, an individual will not be entitled to claim any benefit of relief under Double Taxation Avoidance Agreement unless he or she provides a Tax Residency Certificate to the deductor. To receive a Tax Residency Certificate, an application has to be made in Form 10FA (Application for Certificate of residence for the purposes of an agreement under section 90 and 90A of the Income-tax Act, 1961) to the income tax authorities. Once the application is successfully processed, the certificate will be issued in Form 10FB.
NRI Income Tax Slab Rates
Income Tax Slab Rates for NRI are diversifications based on income amount of the individual. NRI Tax Slab simply dictates what percentage of the total income of the NRI must be offered as tax. Below is the table for the NRI Income Tax Slab Rates:
Income Tax Slab
|Up to 2.5 Lakhs|
2.5 Lakhs to 5 Lakhs
|5 Lakhs to 7.5 Lakhs|
7.5 Lakhs to 10 Lakhs
10 Lakhs to 12.5 Lakhs
|12.5 Lakhs to 15 Lakhs|
|15 Lakhs and above|
NRI Income Tax: An Overview
What we have discussed so far is the basis of NRI Income Tax. What follows this is how different mediums of incomes for an NRI are taxed. What is the taxation on investments in various asset classes? It all integrates together to form the entire concept of NRI Income Tax.
In this category, you will find various articles and FAQs revolving around NRI Income Tax that will conclusively answer all your doubts and queries concerning NRI Income Tax.
For many NRIs who did not update their residential status to 'non-resident', their PANs have become inoperative as a consequence of not linking them with Aadhaar. This issue has raised several questions in the minds of NRIs and one such question is “can NRIs file ITR using inoperative PAN? In this blog, we will explore the concept of an inoperative PAN and its implications on NRI tax filing.
The Indian income tax system has seen some significant changes in recent times, and the introduction of the New Tax Regime is one such development. As much as this move is appreciated by Indian residents, NRIs are still confused and are unclear whether they are eligible for the new tax regime. In this blog, we will answer this question “Can NRI opt for new tax regime”? We will also explore the implications, benefits, and drawbacks of the new tax regime to help NRIs make informed decisions about their tax planning strategies.
As an NRI (Non-Resident Indian), understanding and filing your Income Tax Return (ITR) is crucial to comply with Indian tax laws and avoid any potential legal issues. The ITR filing for the Assessment Year (AY) 2023-24 has started. NRIs who have taxable income in India need to file their ITR for FY 2022-23 by 31st July 2023. In this blog, we will walk you through the essential steps and considerations for filing ITR for NRI (AY 2023-24).
As per the CBDT guidelines, if taxpayers fail to link their PAN and Aadhaar before the deadline of 30th June 2023, their PAN will become inoperative starting from 1st July 2023. However, they can still link their PAN card with their Aadhaar card after paying a penalty fee. In this blog, we have shared the steps NRIs can follow to activate an inoperative PAN card.
Even though taxes are necessary for the economy, they often come across as a burden for people. Now imagine the case of NRIs who have to pay these taxes twice on the same income. Frustrating right? If you are wondering how to avoid double taxation, then you have come to the right place. In this blog, we will understand how double taxation works and how you can avoid it.
Although PAN-Aadhaar linking is not mandatory for NRIs (Non-Resident Indians), they need to update their residential status as an NRI on the Income Tax portal. Since, many NRIs failed to link their PAN and Aadhaar by 30th June and also did not notify the IT department about their NRI status, their PAN has become inoperative. In this blog, we will discuss the consequences of non-linking of Aadhaar with PAN card for NRIs. We will also discuss about the required steps to make their PAN functional again.
NRIs (Non-Resident Indians) who do not possess a PAN card but want to engage in specific transactions mentioned in Rule 114B of the Income-tax Act, 1962 need to file Form 60 as declaration. In this blog, we will delve into the details of Form 60 for NRIs, its purpose, and the process of filing the Form.
An NRO account is designed to manage an NRI’s Indian income, including rent, investments, and other earnings. NRIs are liable to pay taxes on income deposited in an NRO account in India. However, it is crucial to explore opportunities to minimize taxes payable on these accounts. In this blog, we will discuss how can NRIs lower taxes payable on NRO account.
Many NRIs invest in real estate in India and when they have a good offer from a buyer, they tend to sell it. One of the important things to consider here is the tax liability. For an Indian resident, the tax is deducted at 1% of the sale consideration if such transaction’s value is Rs. 50 lakhs or more. Whereas for NRIs, the tax is deducted at 20% of the sale consideration irrespective of the transaction value of the property. This is a genuine concern for the NRIs. However, NRIs can apply for Income Tax Form 13 for lower deduction certificate. This article explores in detail about Form 13 i.e lower TDS Certificate provisions and procedures.