Income Tax for NRI

Introduction

The provision of taxable income, deductions, exemptions and tax rates for NRIs varies compared to resident individuals. 

Typically, income earned outside India is not taxable in India. However, some income earned by non-resident individuals outside India is subject to tax. Income earned and accrued in India is liable to tax, irrespective of the residential status of the taxpayer.
 

GST Calculator

The Indian Government levies Goods and Services Tax (GST) on providing goods and services. GST is an indirect tax that replaced erstwhile indirect taxes in India, such as excise duty, VAT, and service tax. For an NRI dealing with selling or purchasing goods and services in India, you must understand the GST implications. 

You can use an online GST calculator to calculate the GST on your transactions.
 

What is Income Tax Return for an NRI?

The Income Tax Department requires taxpayers and some non-taxpayers to file an income Tax Return (ITR). This requirement extends to NRIs as well. 

Income tax for NRI meaning, as an NRI, you must file an ITR in India if your income accruing or arising in India exceeds the basic exemption limit in a financial year. There are different ITR forms for each category of taxpayers. As an NRI, you must file ITR-2 or ITR-3, depending on your income sources in India.
 

How to Check Residential Status in India?

The Income Tax Act of 1961 provides that an Indian resident must satisfy one of the following conditions.

●    Residence in India for more than one eighty-two days in a financial year or 
●    Residence in India for at least sixty days in the previous year and lived in India for at least 365 days in the last four years.

If an individual does not fulfil these conditions, they are a non-resident. Physical presence, the purpose of the visit, and other factors such as citizenship, domicile, and employment are necessary to check your residential status. 

Filing Income Tax for NRI?

Income tax for NRI is an intricate process since it involves various rules and regulations. You can either file your income tax returns online or offline. Register on the income tax department's website to file your ITR online. Use your PAN card details to file your returns. You may even reach out to a chartered accountant to file your returns.

Determine your residency status

The place of income origination is the most important factor in ascertaining non-resident Income tax for NRI. The Income Tax Act contains different rules to determine the taxability of income in India. 

Non-residents are liable to pay tax in the following circumstances.

1.    Income earned or accrued in India or
2.    Income deemed to be earned or accrued in India or
3.    Income received in India or
4.    Deemed receipt of Income in India.
 

Determine your taxable income

As an NRI, your taxable income in India depends on your income sources in India. If you have income from salary, house property, capital gains, or other sources in India, you need to calculate your taxable income as per the income tax rules in India. You can claim deductions and exemptions to reduce your tax liability. 

To determine taxable income, the concept of total gross income is essential. Gross total income is the sum of the taxable income from different sources. A non-resident is liable to tax if the total gross income in a financial year is more than Rs. 2.50 Lakhs. Some income sources for non-residents include salary earned in India, capital gain from the sale of securities or mutual funds, rental income, or revenue earned from NRO accounts. 

Non-resident Indian income tax varies significantly as compared to rules applicable to resident Indians. Non-residents can claim benefits from tax agreements and treaties between different nations. The provisions of advance tax and tax deducted at source extend to NRIs. They can also claim a refund for tax deducted at source and deductions under Section 80C of the Income Tax Act. However, there are certain restrictions on investments. Similarly, regulatory authorities require various declarations from non-residents for income earned. 

Claim double taxation treaty benefits

India has multiple Double Taxation Avoidance Agreements (DTAAs) with other countries to avoid double-income taxation. As an NRI, if you reside in a country with which India has signed a DTAA, you can claim treaty benefits to reduce your tax liability. You must submit a tax residency certificate and other documents to claim the benefits. For example, assume you earn income in India and receive a net of TDS. You can claim the tax credit in another nation if the income attracts any tax liability to the extent of the TDS paid.  

An NRI can claim tax benefits with the below methods.

a.    Exemption method: Income earned in India is taxable in India and the country of residence. However, the motherland allows an exemption from income tax already taxed in India.

b.    Credit method: Under this method, the income earned in India is taxable in India and the country of residence. However, the resident country allows a credit for the tax paid in India against the tax payable in the resident nation.
 

Check IT Return

After filing the Income tax for NRI in India, you must check the status of your returns. The time limit to verify your return is 120 days; otherwise, it is invalid. 

Once you have filed your income tax return, you can check its status on the income tax department's e-filing website. Enter your PAN number and select the relevant assessment year to check the status of your return. 
 

Taxable Income for Non-Resident Indian

The Income Tax Act of 1961 provides that NRIs are subject to income tax in India if their taxable income in a fiscal year exceeds Rs. 2.50 Lakhs in a financial year. It elaborates on the following provisions for non-resident Indian income tax.

i.    Income from House Property 

Income from house property includes rent or lease of a property in India. Such income is taxable at the prevailing rates. However, non-residents can also claim a deduction under section 80C for principal repayment, registration fees, and stamp duty. If a renter pays rent to an NRI owner, the former may deduct 30% and file Form 15CA.

ii.    Capital Gains 

Profit on the sale of a capital asset attracts tax liability. A capital asset includes shares, securities, property, plant and equipment. The capital gain may be short-term or long-term in nature. The short-term and long-term capital gains rates differ based on the asset class and holding period. 

iii.    Salary 

Any money earned in India, or even received on behalf of an NRI, is subject to taxation. For example, if an NRI earns a wage for services rendered in India, it is subject to taxation.

iv.    Other Income 

Interest income earned on savings bank accounts and fixed deposits maintained by an NRI in India is also subject to taxation.

NRIs are eligible for a tax break on investment income if they invest in certain assets in India, such as securities issued by the Central Government, shares in Indian corporations, debentures, and deposits for publicly listed companies. The NRI does not need to submit tax returns if the investment income is subject to TDS. The tax rate for such investments is 20%.

Tax Exemptions for NRIs

Apart from the basic exemption limit, NRIs are eligible for certain tax exemptions under the NRI income tax slab rates of the Income Tax Act 1961. Here are some of the primary exemptions that NRIs can claim.

a.    Exemption on Long-term Capital Gains (LTCG)

LTCG is the profit earned on the asset sale with a more than two years holding period. For NRIs, LTCG on selling any asset in India is taxable at a flat rate of 20%, plus surcharge and cess. 

However, if you invest the sale proceeds in specified bonds with a time limit, you can claim an exemption from LTCG tax. The maximum amount of investment in these bonds is Rs. 50 lakh in a financial year. You must invest in such bonds within six months from the date of sale. 

b.    Exemption on Short-term Capital Gains (STCG)

STCG is the profit earned on the sale of an asset held for less than two years. For NRIs, STCG on selling any asset in India is taxable at 30%, plus surcharge and cess. 

However, NRIs can claim an exemption from STCG tax if they invest the sale proceeds in a residential property in India within two years from the date of sale or in certain specified bonds.

c.    Exemption on Interest Income

NRIs are eligible for a tax exemption on the interest income earned on certain investments in India, such as NRE and FCNR deposits and tax-free bonds. The interest earned on these investments is exempt from tax in India. 

d.    Exemption on Income from Agriculture

NRIs who own agricultural land in India are eligible for a tax exemption on the income earned from such land. The income from agricultural land is not taxable in India, provided the land is in a rural area.

e.    Exemption on Gifts and Inheritance

NRIs are eligible for a tax exemption on gifts and inheritance received from relatives, as defined under the Income Tax Act.
 

Income Tax Deductions

Income tax for NRI deductions is an effective way for them to reduce their tax liability in India. Here are ways to claim income tax deductions for NRIs.

1.    Deduction under Section 80C

NRIs are eligible for deductions under Section 80C of the Income Tax Act. Deductions include investments in equity-linked savings schemes, payment of life insurance premiums, or principal repayment of a home loan. 

2.    Medical Insurance 

NRIs are also eligible for deductions under Section 80D for health insurance premiums paid for themselves and their family members.

3.    Interest on home loans 

NRIs who have taken a home loan in India can claim deductions for the interest paid under Section 24. The maximum deduction allowed is Rs. 2 lakhs per year.

4.    Other deductions 

NRIs can claim a deduction for charitable donations to approved organisations under Section 80G. NRIs who have incurred expenses on their children's education in India can claim a deduction for the same under Section 80E. NRIs can also claim a deduction for interest earned on savings bank accounts and fixed deposits in India under Section 80TTA.
 

Conclusion

NRIs must file income tax returns in India if their income from Indian sources exceeds the basic exemption limit. They are also eligible for certain tax exemptions and deductions. It’s further advisable to seek professional advice to ensure compliance with the tax laws of India and their country of residence to help save tax.