Claim a refund on LTCG tax: There are various sources of income or NRI investment options in India. However, as per Indian tax laws, an NRI can receive payment only after the deduction of TDS, even if their income is less than Rs. 2.5 lakh per annum. TDS is deducted on long-term capital gains (LTCG) and short-term capital gains (STCG) earned by NRIs on mutual funds, shares, bonds, rental income, sale of property, stocks, NRO accounts, etc. Interest on NRE and FCNR accounts is tax-exempt.
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.
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The income earned by NRIs in India is taxed if it exceeds the amount of Rs. 2,50,000 per annum. However, the overseas income of NRIs is not taxed in India. Income tax for NRIs largely depends on the number of days an NRI stays in India. Here you will learn how NRIs can avoid paying higher TDS in India.
Since the person (NRI) doesn't live in India, the TDS (Tax deducted at Source) applicable on sale of property by NRI in India is different compared to when an Indian resident sells a property. However, the good thing is that they can apply for a Lower TDS Certificate for NRI to avail of TDS Exemption or Lower TDS Certificate. In this case, the NRI won't have to pay a high tax rate as it will be lowered under the IT Act, 1961.
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