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.
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Did you know that you can claim a deduction on the interest earned on your NRI Savings Bank Account up to a maximum of Rs.10,000 just like Resident Indians under section 80TTA? The bank accounts for Resident Indians and NRIs are different. We have already understood the concept of Non-Residents and their bank Accounts and know that an NRI can only have a Non-Resident External (NRE) or a Non-Resident Ordinary (NRO) Savings Account in India. The third type, Foreign Currency Non-Resident Bank Account [FCNR(B)] is a deposit only account. The interest that you earn on an NRE Savings Account is tax-free in India. So, the only savings account we are left with is the NRO Savings Account.
TDS Return Forms for NRI: Tax Deducted at Source or TDS is an advance tax collected mostly at the source of income according to the Indian Taxation Code with its rules and regulations controlled and governed under the Income Tax Act, 1961 by the Central Board of Direct Taxes (CBDT). The provisions of TDS are implemented on the earnings of individuals and businesses by the government to generate revenues.
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TDS stands for Tax Deducted at Source. Find the table of revised TDS Rates for Residents as well as Non-Resident Indians (NRIs) in India post the Union Budget of 2020 in this article.
TDS is either deducted at source by the companies through which you invest your money in India, while the returns are received calculated on stipulated TDS Rates, or by institutions providing salaries to you or directly by people paying the income to you and it needs to be deposited within a stipulated time to the government.
How frustrating can it be to give away most of your hard earned money as tax? Especially for NRIs who can be subject to double taxation. You might be working abroad and have to pay taxes both in India and abroad. That’s infuriating, right? Well, not if you keep a track of DTAA which is the Double Taxation Avoidance Agreement enabling you to avoid double taxation in India and abroad. In this article, we will try to cut down your taxes to the minimum. How? Let’s explore.
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Taxation has always been a confusing subject. Let’s understand the fundamentals of NRI Income Tax in this article step by step. We will guide you through the taxes you have to pay and not pay being an NRI.
Income Tax in India has certain rules and regulations that define who are liable to pay them and who are exempted. So before knowing about the process of paying these taxes, let us first figure out whether you are even liable to pay these taxes or not. One thing you should know is that only the income generated in India is liable for Income Tax.