The residential status of an individual, as to whether he/she is a resident Indian or a non-resident (NR) or not ordinarily resident depends on the period of a person’s stay in India during the previous year or years preceding the previous year. However, in view of the Covid-19 pandemic and the consequent overstay of an individual who had visited India before 22nd March 2020, the Central Board of Direct Taxes has issued a circular on 3rd March 2021 to determine the NRI Status for Financial Year 2020-21. CBDT clarified that the overstay of NRIs due to the Covid-19 pandemic restrictions shall not be taken into account for the purpose of determining the residential status under Section 6 of the Income Tax Act, 1961. The board clarified that income tax will not be levied on Non-Resident Indians (NRIs) who have exceeded the mandated residency limit.
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.
New TDS/ TCS rules for NRIs: In the Union Budget 2021 speech, Finance Minister Nirmala Sitharaman announced new provisions related to TDS (Tax Deducted at Source) and TCS (Tax Collected at Source) for taxpayers. These new TDS/TCS rules will be effective from 1st July 2021.
The taxation system in India is an integral part of the country’s economy. Several taxes are levied on the products and services availed by the citizens of India. These taxes are used to finance social projects, and to improve the products and services used by consumers. There are several taxes for people residing in India and non-residents as well, such as Goods and Service Tax (GST), income tax, property tax, and taxes deducted at source, etc. In this article, we will decode the importance of income tax for NRIs in India.
Usually Non-Resident Indians (NRIs) have to pay tax twice. Non-Resident Indians who live and earn abroad have to pay tax in their host country. And if they earn income from investments, assets or business transactions in India, they will have to pay tax on this income in India as well. However, tax payment has some benefits. Do you make the most of any tax deductions and provisions available to you? In this article, we will discuss the 5 ways to save on the tax NRIs have to pay.
Before 2011, Non-Resident Indians (NRIs) couldn’t open a joint bank account with residents. However, liberalizing the foreign exchange rules, the Reserve Bank of India (RBI) has allowed residents of India to include a non-resident close relative in their resident bank account on ‘former or survivor’ basis from 2011. However, such non-resident relatives shall operate such accounts only on behalf of the resident account holder for domestic payment and not for creating any beneficial interest for himself/ herself. For stock trading and investment in mutual funds, non-residents need to open an NRI account.
NRI Tax Filing Deadline Updated: Through it’s latest circular (08/2021; F. NO.225/49/2021/ITA-II ) dated 30th April, 2021, Central Board of Direct Taxes has extended the Income Tax Filing deadline till 31st May 2021 from 1st April 2021 previously. Find the circular below:
PAN Aadhaar Linking for an NRI: There is a notification under the Income Tax Act that says: “Link you PAN with Aadhaar before 31st March 2021 else the PAN shall become inoperative” Now, NRIs are worried about this penalty and have constantly been asking about PAN Aadhaar Linking. Since, most of them don’t have an Aadhaar card, this doubt becomes more and more legit! Let’s take a look at the summary of some of the sections in the Income Tax Act and create a sequence that will enable us to understand whether linking of the PAN Card with Aadhaar Card is mandatory for an NRI or not.
India being the land of festivities has a constant inflow and outflow of gifts. A gift from USA to India or gifts from India to USA complements the emotional quotient of the people in these two countries who are staying apart but keep on sending happiness in boxes to each other at a magical frequency. Now, these boxes are metaphorical! Well, some are literal too. But most of these gift exchanges happen online in the form of bank transfers, real estate, shares etc. In this article, we will discuss the angles around gifts to India from USA and Indian gifts to USA focusing on the taxation and exemptions provided under the NRI Gift Tax Rules.
NRIs stuck in India as a result of the COVID-19 travel restrictions had double taxation worries that were recently addressed by the government of India. Authorities have asked such non-residents who faced double taxation in the due course of their stay in India to submit the relevant information by the end of March. As a result of the Double Tax Avoidance Agreement (DTAA), “there shouldn’t be any situation under which the individual taxpayer would be under a hardship of having double taxation in two countries due to the Covid-19 situation” iterates Nishit Parikh, the partner, direct tax and regulatory services at Sudit K. Parekh & Co, a Mumbai-based chartered accountants firm.
The most common doubts that can be served along with the morning breakfast to an NRI would be around filing Income Tax Returns. Many NRIs from all around the world repeatedly ask our taxation experts whether they need to file their ITRs in India or not! Is it mandatory? Differences between various ITR Forms for NRIs? How can they manage double taxation on the same income source and whatnot! In this article, let’s answer these basic doubts along with understanding the aspects of NRI Income Tax e-filing and its benefits. Yes! That’s right. Not only filing your returns in India as an NRI is easy and convenient but beneficial for you as well. The Union Budget of 2021-22 has eased the processes further with certain relaxations for NRIs. Let’s glance through the top 10 benefits of filing ITR for an NRI: