NRI taxation under the The Indian Income Tax Act, 1961, applies to those people who make money outside of their place of residence. The tax laws governing NRIs (Non-Resident Indians) are different from those that apply to resident Indians. In this article, we will discuss the details of taxable income for NRIs in India and NRI income tax filing.
Who is an NRI?
According to the Income Tax Act, a citizen is said to be a resident of India if-
1. The status of Indian Resident is given to those who have stayed in India for about 182 days during the financial year, or
2. Have stayed for a minimum of one year (365 days) in the last four years and stayed for 60 days in the concerned year.
Anyone not following the condition will be considered an NRI or a Non Resident Indian.
Do NRIs Have to Pay Taxes in India for Income earned Abroad?
While NRIs do not have to pay taxes in India for income earned abroad, tax is applicable on income earned in India by an NRI.
- For non-resident Indians, only income earned, accumulated, or deemed to be earned in India is subject to taxation in India. If an NRI earns income from a country other than India, it is not subject to taxation in India.
- For example, NRIs need to pay tax on their earnings in India such as dividends, rental income, pension, or any other income that is generated in India or deemed to be generated in India.
New Rules for NRI Taxation in India
Given below points are as per the new rules of NRI taxation in India:
- As per the Finance Act, 2020, citizens of India earning more than Rs 15 lakh from Indian sources shall be deemed a resident of India if they are not liable for payment of taxes in any other country.
- If the person’s total income (other than income from foreign sources) is up to Rs 15 lakh, then the 60 days condition is extended to 182 days. The 60-day condition is extended to 182 days if the individual, being an Indian citizen, is leaving India for employment outside India.
Taxable Income for NRIs in India
Given below is a detailed account of taxable income for NRIs in India:
- Salary
In case an NRI receives a salary in India, it becomes taxable in India. Hence, if an NRI earns a salary for services rendered in India, such income is subject to taxation.
- House Property and Loans
a. Income derived from a vacant or rented house property in India is taxable as per the current rates.
b. The income tax regulations mandate that any capital gains arising from the lease, sale, or rent of a property in India are taxable.
c. An NRI, like any other Indian resident, can claim a deduction of up to 30% on their home loan in India. Furthermore, an NRI can also claim deductions for principal repayment, registration fees, and stamp duty under Section 80C.
d. If a tenant pays rent to an NRI property owner, a TDS at a rate of 30% must be deducted before transferring the funds to the NRI’s account. The person making the payment to the NRI must file Form 15CA/15CB online with the Income Tax Department.
- Capital Gains
a. In India, capital gains arising from long or short-term securities are subject to taxation.
b. Capital gains on shares held in India are also taxable.
c. The transfer of an asset in India resulting in capital gains is also subject to taxation.
- Investments
NRIs who invest in assets in India are taxed at a rate of 20%. If TDS has been deducted on the invested income, they are not required to file returns. Additionally, there are certain investment assets in India that qualify for special treatment, which are listed below:
1. Central government securities
2. Shares in Indian companies
3. Deposits
4. Debentures (for publicly listed companies)
- Other Sources
Income sourced from India, such as interest earned on fixed deposits and savings accounts, is subject to taxation in India. Interest received on NRO (Non-Resident Ordinary) accounts is fully taxable, while interest received on NRE (Non-Resident External) and FCNR (Foreign Currency Non-Resident) accounts is exempt from tax.
Income Tax Rates for NRIs
Given below is the table for the latest Income Tax Slabs for the FY 2022-2023:
A- Existing Tax Regime
| Income Tax Slab | Income Tax Rate |
|---|---|
| Up to ₹ 2,50,000 | Nil |
| ₹ 2,50,001 – ₹ 5,00,000 | 5% above ₹ 2,50,000 |
| ₹ 5,00,001 – ₹ 10,00,000 | ₹ 12,500 + 20% above ₹ 5,00,000 |
| Above ₹ 10,00,000 | ₹ 1,12,500 + 30% above ₹ 10,00,000 |
B- New Tax Regime
| Income tax Slab | Income Tax Rate |
|---|---|
| Up to ₹ 2,50,000 | Nil |
| ₹ 2,50,001 – ₹ 5,00,000 | 5% above ₹ 2,50,000 |
| ₹ 5,00,001 – ₹ 7,50,000 | ₹ 12,500 + 10% above ₹ 5,00,000 |
| ₹ 7,50,001 – ₹ 10,00,000 | ₹ 37,500 + 15% above ₹ 7,50,000 |
| ₹ 10,00,001 – ₹ 12,50,000 | ₹ 75,000 + 20% above ₹ 10,00,000 |
| ₹ 12,50,001 – ₹ 15,00,000 | ₹ 1,25,000 + 25% above ₹ 12,50,000 |
| Above ₹ 15,00,000 | ₹ 1,87,500 + 30% above ₹ 15,00,000 |
NRI Taxation
Given below are the major points concerning NRI taxation in India:
- The income tax slabs for NRIs are solely based on their income without any regard to gender, age, or other specifications.
- For TDS, all incomes of NRIs are subject to taxation regardless of any threshold value.
- Except in specific circumstances, no nominal deductions apply to investment income.
- If an NRI’s income falls under the provisions of Section 115G of the Income Tax Act, e-filing of income tax returns is typically not required.
Given below are some specific provisions that exist as per the Income Tax Act for an NRI:
- Section 115D for computation of tax
- Section 115E for tax on income from investment and long term capital gains
- Section 115F for non chargeable capital gains on transfer of foreign exchange assets in certain cases
- Section 115G for non-filing of returns of income in specific cases
- Section 115H for benefits of taxation after an NRI becomes a resident
- Section 115I for Non-application of provisions for NRI taxation
Can NRIs avail of any Tax Deductions?
Yes. Similar to resident Indians, NRIs can also claim various deductions and exemptions from their income in India. The deductions that are allowed for an NRI are as follows:
a. Under Section 80C
- LIC premium
- Tuition Fees
- Principal repayment of home loans
- ULIP (Unit Linked Insurance Plan)
- ELSS (Equity Linked Savings Scheme)
b. Under Section 80D
- Medical Insurance
c. Under Section 80E
- Interest paid on education loan
d. Under Section 80G
- Donations
e. Under Section 80TTA
- Interest on Savings Bank Account
How to File Income Tax Return for NRIs
Given below are the steps on how to file an income tax return for NRIs:
1. Know your Residential Status
To begin with, it is important to establish the residential status for a given financial year. Determining your residential status is based on Section 6 of the Income Tax Act of 1961 and depends on the number of days you spend in India. If you spend 182 days or more outside of India, you are considered a non-resident. Otherwise, you are considered a resident.
2. Determine your Taxable Income
You then need to determine your taxable income, which requires an understanding of total gross income, i.e., income before tax deductions. If your total gross income exceeds Rs 2.5 lakhs, you are liable to pay taxes in India. However, NRIs may be eligible for tax treaty benefits and can claim refunds if TDS is deducted on their income. To do this, you must reconcile the TDS credit and advance tax as shown in Form 26AS.
Filing returns is compulsory for both of the scenarios mentioned above. NRIs are eligible to claim deductions up to Rs 1.5 lakhs under Section 80C of the Income Tax Act, but there are certain instruments in which they cannot invest. If your income in India exceeds Rs 50 lakhs, you must report your assets and liabilities in India.
3. Claim DTAA Benefits
NRIs can claim benefits of Double Taxation Avoidance Agreement (DTAA). According to the DTAA, income can either be exempt from tax deduction in one country or taxed at a lower rate in the home country. For example, if you have already paid tax in India, you can receive a tax credit in your country of residence for the tax paid on the same income.
4. Verify IT Returns
Once IT returns have been filed, you need to verify them within 120 days. Otherwise, they are not valid.
Contact SBNRI
Whether NRI tax rules or criteria to determine NRI status keep changing each year. Due to a complicated tax system, understanding tax rules for NRIs can be confusing and NRIs may miss claiming deductions and other benefits. At SBNRI, we understand this struggle. You can download SBNRI App to connect with our NRI Tax Experts and get end-to-end assistance related to NRI tax filing. SBNRI will also help you get a lower TDS Certificate.
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