Non resident Indian taxation
This post will go over Income Tax for NRIs: Taxable Income and Deductions. Let’s look at each section in detail:
Who is a Non-Resident in Income Tax?
A non-resident Indian (NRI) is someone who doesn’t spend long enough in India to be declared an ordinarily resident for tax purposes. This is decided by staying in India for 182 days or more in a financial year, or during the previous four years, staying for 60 days or more every year and 365 days or more in total.
There is one exception: Indian citizens or PIOs living abroad qualify as residents if they spend at least 182 days in India each year.
How to Determine Residential Status?
A non-resident is someone who does not meet the conditions needed to be considered a resident of India. To be a “resident of India” for a financial year, you must:
- Be in India for at least 182 days during the financial year. OR
- Stay in India for 60 days during the financial year and 365 days in the previous 4 years.
There are some exceptions to the above conditions of 60 days:
- Indian citizens who left India as crew members on an Indian ship or to work outside the country.
- People of Indian Origin (PIO) or Indian citizens visiting India.
In some cases, the 60-day rule does not apply; you must be in India for at least 182 days to be considered a resident.
If you do not meet any of the criteria listed above, you are a Non-resident.
Resident but Not Ordinarily Resident (RNOR)
You are considered RNOR if:
- You were a non-resident for 9 out of the previous 10 years, OR
- You stayed in India for 729 days or less in the last 7 years.
RNOR Conditions for Indian Citizens or PIO Visiting India:
- The total income, excluding foreign income, is more than 15 lakh.
- You were in India for more than 120 days but less than 182 days the previous year.
- You stayed at least 365 days in India over the 4 years before the previous year.
Taxation Rules for NRIs
The tax rules for NRIs are different from those for resident Indians. Here are some important points:
- Income tax slabs for NRIs are based only on income, not gender, age, or other factors.
- TDS is imposed on all NRI income, regardless of the threshold value.
- Except in rare cases, nominal deductions do not apply to investment income.
- If an NRI’s income falls under Section 115G of the Income Tax Act, they are usually not required to file taxes.
Taxable Income for a NRI
When you receive your salary in India, it is taxable, whether you receive it personally or through someone else. If you are an NRI and deposit your pay into an Indian account, it will be subject to Indian tax rules and taxed at the applicable slab rate.
1. Income from salary
If you provide services in India, your salary income is regarded to have originated in India.
So, even if you are an NRI, if your salary is for services provided in India, it will be taxed in India, regardless of where you receive the money.
If you are an Indian citizen working for the Government of India, your salary will be taxable in India, even if you work outside of the country.
Diplomats and ambassadors are exempt from taxation. For example, Rajesh spent three years working in China on a project for an Indian company. Rajesh required his salary in India to cover family costs and a home loan. However, because salary received in India would be taxed under Indian law, Rajesh preferred to receive it in China.
2. Income from house property
Income from property in India is taxable for non-resident Indians. This income is calculated the same way as a resident’s. This property may be rented or unoccupied. An NRI can claim a 30% standard deduction, deduct property taxes, and deduct interest on the loan.
They can also claim deductions for principal payments under Section 80C, including stamp duty and registration fees.
Income from houses is taxed at the applicable slab rates.
For example, Priya owns a house in Goa that she rents out while living in Bangkok. Rent payments are deposited directly to her Bangkok bank account. Priya’s earnings from this residence in India are taxable in India.
3. Rental payments to an NRI
When renting from an NRI owner, remember to deduct TDS at 30% of the rent payment. Rent can be transferred to an Indian account or an NRI’s abroad account.
For example, Sarah pays her NRI landlord Rs 30,000 per month as rent. Before sending the money, she deducts 30% TDS, which is Rs 9,000. Sarah must also arrange for Form 15CA to be finished and filed electronically to the income tax department.
This form is necessary for every remittance to a non-resident Indian. In certain cases, a chartered accountant’s certification in Form 15CB is required before filing Form 15CA online. Form 15CB specifies the payment details, TDS rate, applicable DTAA (Double Tax Avoidance Agreement), and other remittance information as per Section 195 of the Income Tax Act.
Form 15CB is not required in the following cases:
- When total remittances do not exceed Rs 5,00,000 in a single financial year. Only Form 15CA should be filed.
- If the lower TDS is applicable due to a Section 197 certificate from the AO.
- If the transaction is covered under Income Tax Act Rule 37BB, listing 28 specific items, neither form is necessary.
- For every other case involving remittance outside of India, the remitter must obtain a CA’s certificate in Form 15CB and then submit Form 15CA to the government online.
4. Income from Business and Profession
Any money earned by an NRI from a business controlled or started in India is taxed for the NRI.
5. Income from Other Sources
Interest from savings accounts and fixed deposits in banks are taxable in India. On the other hand, interest received on FCNR (Foreign Currency Non-Resident) and NRE (Non-Resident External) accounts is tax-free. However, NRO (Non-Resident Ordinary) account interest is completely taxable.
6. Income from Capital Gains
Profits from the sale of assets located in India are taxable. This includes gains from Indian stocks and securities. When selling a residence for a long-term profit, the buyer must subtract 20% TDS.
However, you can escape this tax by reinvesting in another property under Section 54 or in certain bonds under Section 54EC.Profits from the sale of assets located in India are taxable.
Tax Exemptions for NRIs
Under the new tax laws for NRIs, several exemptions are allowed under the Income Tax Act:
- Interest earned on non-resident external (NRE) or foreign currency non-resident (FCNR) accounts.
- Interest generated on government-issued bonds and savings certificates.
- Long-term capital gains on listed equities shares and equity-oriented mutual funds. (NRIs must pay tax on dividends).
Capital gains can be exempted under the following conditions:
- Sale of a house property held for more than 24 months, with the funds used to buy another property or put in a PSU or specified bank under the 1988 Capital Gains Account Scheme.
- Sale of any property other than a house, with an exemption for the construction or purchase of a new house in proportion to the invested net consideration.
- Long-term capital gains from immovable property are invested in 54EC bonds, such as those issued by the National Highway Authority of India and the Rural Electrification Corporation. These bonds are redeemable after five years. Exemption is allowed for up to Rs 50 lakh.
Tax Deductions for NRIs
NRIs can avail of tax deductions in the Income Tax Act under various sections:
1. Deductions Under Section 80C
- NRI Life Insurance Premium: NRIs can deduct the premium if it is less than 10% of the sum assured for themselves, their spouse, or their child.
- Tuition Fee Deduction: Tuition costs paid to Indian educational institutions for full-time education of up to two children are eligible for a deduction.
- Principal Repayment on Home Loan: A deduction is allowed for the principal repayment of a loan used to purchase a home.
- ULIP Investment Deduction: Under certain conditions, investments in ULIPs are deductible.
- Interest on Housing Loan for Vacant House: Interest paid on a housing loan for a vacant home is tax deductible.
2. Deductions Under Section 80D
Deduction on health insurance premiums for immediate family and dependents, as well as preventative health check-ups, according to certain limits.
3. Deductions Under Section 80E
You can deduct the interest paid on a higher education loan (for yourself, your spouse, children, or a dependent student). This deduction is valid for a maximum of eight years, or until the interest is entirely paid, whichever comes first.
4. Deductions Under Section 80G
Deduction for suitable donations made under Section 80G of the Income Tax Act.
5. Deductions Under Section 80TTA
Deductions for interest earned on a savings bank account (up to ₹10,000).
How can NRIs avoid double taxation?
As an NRI, you can avoid paying double taxes in both your home country and India. This is possible due to India’s Double Taxation Avoidance Agreement (DTAA) with various other countries.
There are two ways to claim tax relief under the DTAA:
- Exemption Method: You are taxed in only one country while being tax-free in the other.
- Tax Credit Method: This method allows you to claim relief for taxes paid in your present country of residence, even if you are taxed in both countries.
These regulations allow NRIs to manage their tax responsibilities across borders properly.
Income Tax slab for NRIs
- Up to Rs.3 lakh – 0% (Nil)
- Rs. 3 lakh to Rs. 6 lakh – 5%
- Rs. 6 lakh to Rs. 9 lakh – 10%
- Rs. 9 lakh to Rs. 12 lakh – 15%
- Rs. 12 lakh to Rs. 15 lakh – 20%
- Above Rs. 15 lakh – 30%
Surcharge Rates for NRIs
- Income tax on total income above Rs 50 lakhs but less than Rs 1 crore is subject to a 10% surcharge.
- Income tax on total income above Rs 1 crore but up to Rs 2 crore is subject to a 15% surcharge.
- Income tax is charged at a 25% surcharge on total income above Rs 2 crore but up to Rs 5 crore.
- Income tax on total income of more than Rs 5 crore is subject to a 37% surcharge.
These surcharges, which include marginal relief, also apply to NRI income.
Our blog post about Income Tax for NRIs is now complete. If you have any further questions or concerns, please share them in the comments space.
FAQs
1. Is the salary earned by an Indian resident in the UAE under DTAA taxable in India?
Ans: An Indian resident’s salary in the UAE is taxed in India.
2. Is an Indian student studying abroad considered an NRI for income tax purposes?
Ans: Under the Indian foreign currency regulations, Indian students studying abroad are classified as NRIs and are eligible for benefits given to NRIs.
3. What are the tax implications for an NRI who inherits agricultural land?
Ans: An NRI who inherits agricultural land is not taxed.
