Who is a non-resident Indian (NRI), what tax exemptions they can / cannot claim, where can they invest / not invest, when do they file taxes... anything that you wanted to know about NRIs and their taxes...
To know if you, as an NRI, are supposed to pay tax in India, the first step is to determine your residency status for taxation purposes in the previous year, and whether your income falls in the taxable bracket.
Definition of NRI (Non-Resident Indian)
Before you know about taxes for NRIs, please click here to understand whether you fit into the definition of an NRI.
Income earned abroad
Any income earned abroad is not taxable in India for NRIs. As per Section 9 of the Income-tax Act foreign income for NRIs is exempt, barring some special cases.
Which income is taxable for NRIs
Any income that accrues in India or arises in India, or is deemed to accrue or arise in India, and any income that is received or deemed to be received in India will be taxed for NRIs. Thus it does not matter whether you are working for an Indian company, a multinational company or a foreign company but are being paid in India, you will have to pay taxes in India.
So the taxable income for NRIs will include:
- Any salary received or salary for service provided in India.
- Income from residential property in India (whether rented or vacant).
- Any capital gains resulting from the transfer of property or assets in India.
- Income from deposits like fixed deposits or interest on bank savings account in India.
- Interest on NRO (non-resident ordinary) accounts. However, the interest on NRE (non-resident external) and FCNR (foreign currency non-resident) accounts will be tax-free.
To know more about NRO and NRE Accounts, click here
When is an NRI required to file tax returns?
These rules remain the same for NRIs as well as resident Indians. Whether you are an NRI or a resident, if your total annual income is above the basic exemption limit of Rs.2.5 lakh, filing of tax returns is mandatory. The last date for filing returns is 31 July of the relevant assessment year.
Do NRIs need to pay advance tax
These rules remain the same for NRIs as well as resident Indians. If your tax liability as an NRI exceeds Rs.10,000 in a financial year, you will have to pay advance tax. If you don’t do so, interest will be levied under Sections 234B and 234C.
Where are NRIs allowed to invest in India
NRIs cannot invest in all investment avenues available to resident Indians. Click here to know more about the investing possibilities for NRIs.
Where are NRIs not allowed an investment in India
NRIs are not allowed any investment in:
- Senior Citizens Savings Scheme
- National Savings Certificates Scheme
- Five-year Post Office Deposit Scheme
- SSY (Sukanya Smridhi Yojana)
Which exemptions and deductions are NOT available to NRIs?
All exemptions that are available to a resident Indian are also available to NRIs except the following:
- Section 80CCG (investment in Rajiv Gandhi Equity Saving Scheme).
- Section 80 DD (deduction for medical treatment of disabled dependent as defined in the section).
- Section 80DDB (deduction for differently abled dependent as certified by a prescribed specialist).
- Section 80TTB (Rs.50,000 interest income on bank savings accounts for seniors).
- Section 80U (deduction for taxpayers who are suffering from disability).
- Section 87A (rebate up to Rs.5 lakh (old regime) and Rs.7 lakh (new regime)).
- The setting off of short-term capital gains of equity shares and mutual funds against the basic tax exemption limit is also not available to NRIs
If tax has been paid abroad, will the NRIs have to pay it in India?
An NRI’s foreign income is generally not taxable in India. However, in some cases, where a person is resident in two or more countries, then:
- Tax residency has to be established
- DTAA (Double Taxation Avoidance Agreement) relief can be claimed if foreign income is being declared due to tax residency in India
Only a resident Indian can offer his foreign income to tax and can set it off if tax has been paid abroad.
To know more about DTAA, click here
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