NRI taxation can be as complicated as, if not more, than taxation for residents in India. NRIs come to India for a very few days either for weddings, festivals, family functions or to travel. Usually they get barely 2 weeks of vacation in which they have to fit in a lot of things such as meeting relatives, shopping, going for functions etc. Attending to financial matters under these circumstances can prove to be overwhelming with NRIs trying to fit in so many things in their very short holiday to India. They are also unaware of the NRI tax laws in India
Here are a few key things an NRI must know with respect to taxation in India:
Who is an NRI?
- A Non-Resident Indian (NRI) is an Indian Citizen who resides in India for less than one hundred & eighty two days during the course of the preceding financial year*, or
- Who has gone out of India or who stays outside India for the purpose of employment, or
- Who has gone out of India or who stays outside India for carrying on business or vocation outside India, or
- Who has gone out of India or who stays outside India for any other purpose indicating his intention to stay outside India for an uncertain period.
*Recent amendment in the Budget 2020 proposed to reduce this period of one hundred & eighty two days to one hundred and twenty days for all NRIs. This shall only apply where the total Indian income of the visiting individuals during the financial year is more than 15 lakhs.
Income on which tax is payable by an NRI:
NRI tax in India is payable only on the income earned/collected in India including salary received/services provided in India. Tax is also payable on the following incomes:
- Income from House properties in India
- Capital Gain on the transfer of assets situated in India
- Income from the fixed deposits/Interest on savings bank account in India
Is tax filing in India for NRI mandatory?
If your income exceeds Rs. 2, 50,000 in a financial year you will be required to file a return in India, irrespective of your residential status. The tax exemption limit for NRIs is as applicable for resident individuals i.e. Rs. 2, 50,000. The due date for filing tax returns in India for NRIs is 31st July. However for the AY 2020-21, this date has been extended to November 30, 2020.
NRIs are also required to file their returns when they,
- Want to claim a refund
- Have a loss that they want to carry forward.
The tax return form for NRIs is Form ITR-2 or ITR-3, depending on the nature of the income. If NRI has income from business or profession, then return is required to be filed in Form ITR-3. In all other cases, ITR-2 can be used to file return of income.
What are tax benefits in India for NRIs?
Most of the deduction under section 80 are available to NRIs. The maximum deduction allowable is upto Rs. 1,50,000 under section 80C from the gross total income for an individual.
Of the deductions under section 80C, those allowed for NRIs are:
- Life insurance premium payment for self, spouse or child. The premium must be less than 10% of the sum assured.
- Children’s tuition fee payment paid to any school, college, university or other educational institution situated within India for the purpose of full-time education of any two children.
- Principal repayments on loan for the purchase of a house property is allowable as a deduction. It is also allowed for stamp duty, registration fees and other expenses for purpose of transfer of such property to the NRI.
- Unit-linked insurance plan (ULIPS) which are sold along with life insurance cover for deduction under section 80 C.
- Investments in ELSS which are Equity Mutual Funds earmarked to offer benefit to taxpayers along with providing an excellent investment opportunity.
Section 80D: Health insurance premiums for immediate family members and dependents.
Section 80E: Deduction of interest paid on an education loan for the higher education for self, spouse or a dependent student subject to the earlier of a period of 8 years or till the interest is paid.
Section 80G: Deductions available as per section 80G
Section 80TTA: Maximum of INR 10,000 on interest from savings bank account
Long term capital gains from property held for 36 months or more can be invested in another property and the amount used in the transaction will be exempted.
What are the tax slabs for NRIs?
NRIs are required to pay tax as per individual slab rates. As per the latest regulations there are 2 options that an individual may avail:
What are NRO and NRE account tax implications?
As an NRI one can hold 2 types of bank accounts. NRO account is a bank account opened in India to manage the income earned by an NRI in India. These incomes include rent, dividend, pension, interest, etc.
NRE account is opened in India where an NRI can park his foreign earnings. While both are rupee denominated the tax implications and repatriation rules are different for both accounts.
NRE accounts are fully exempt from tax. Neither the balance, nor the interest earned on these accounts is taxable.
The interest earned on an NRO accounts is however taxable @30% according to the Income Tax Act.
An often asked question is, what the tax on remittance for an NRI is. Any amount can be remitted from the NRE account freely without any taxes.
Balances in the NRO account are not freely repatriable, however RBI allows you to transfer upto USD 1 million per financial year from the NRO account, provided you fill in the necessary documentation. In order to remit funds from the NRO account, you would need to submit two documents: Form 15 CA and Form 15 CB. Form 15CA is an undertaking by the NRI to remit funds while Form 15CB is a certification of the information by a Chartered Accountant