Income Tax Rules for NRI Returning to India

Tax Rules for NRI Returning to India


Non-Resident Indians or NRIs, just like any other individual taxpayer in India, need to follow the income tax guidelines as mentioned under the Income Tax Act of India. This certainly means that any NRI individual needs to submit his/her taxes on time and also submit a valid and duly filled in Tax Return as stipulated under the Income Tax Act of India.


NRI Returning Back to India


There are scenarios when a Non-Resident Indian or any individual residing outside the national boundary of India plans to return back to India permanently. Though an NRI is considered almost similar to any other ordinary taxpayer within India, it is important to understand the tax implication for NRI individuals who are planning to return back to their homeland permanently.


Prior to understanding the tax implications and liabilities of such NRIs, it is important to be clear regarding our definition of NRI. An individual would be considered to be a Non Resident Indian or NRI if he/she is a citizen of India or is a person of Indian origin who stays outside India but such individual visits India in any year and the period of total stay in India is less than 182 days in that particular relevant tax year (Usually financial year starting April 1 to March 31 is considered to be a tax year as well). Another way of defining Non-Resident Indian is if the individual is not physically present in India for 60 days or more in any financial year and 365 days or more in the four consecutive financial years prior to the relevant financial year.


NRI Income Tax Rules


Under the Income Tax Act of India, NRI or an ordinary resident of India is considered one and the same. However, there are certain important points which an NRI individual needs to understand in order to understand the income tax rules of India.

  • Salary Income of an NRI individual is taxable only when the salary is received in India which would include receiving the salary in any account in any bank at any branch situated within India by self or even if someone receives the salary on behalf of the NRI individual.
  • Apart from the salary income received by an NRI within India, some other incomes which are taxable for an NRI (whatever is applicable) would include:

  1. Income from House Property for houses situated in India and owned by the NRI individual which would include both rented and vacant property, though he/she is allowed certain deduction on such income such as property taxes paid
  2. Rents on property situated in India received by the NRI individual
  3. Income from other sources such as interest income earned from any savings account and/or fixed deposits with any Indian Bank and any branch situated within India, though interest on NRE (Non-Resident External) and FCNR (Foreign Currency Non-Repatriable) accounts are tax-free. However, NRO (Non-Resident Ordinary) accounts are fully taxable
  4. Income earned by an NRI individual from any business set up or controlled in India 
  5. Income from Capital Gains

  • NRI individuals get deductions from Income Tax under the following sections

Section 80C which includes:

  • Life insurance premium payment
  • Children’s tuition fee payment
  • Principal repayments on loan for the purchase of a house property:
  • Unit-linked insurance plan (ULIPS)
  • Investments in ELSS

Other Allowable Deductions include:

  • Deduction from House Property Income for NRIs
  • Deduction under Section 80D
  • Deduction under Section 80E
  • Deduction under Section 80G
  • Deduction under Section 80TTA

Income Tax Rules for NRI Returning to India


When an NRI individual decides to return to India, the tax implications depends on the residential status of the individual. The NRI individual’s income overseas would include:

  • Rental income from property outside India
  • Capital gains outside India
  • Bank interests earned outside India
  • Dividends earned outside India

Such income can arise from various assets such as:

  • Bank accounts
  • A stock market or securities
  • Life insurance policies
  • Loans
  • Company deposits
  • Debentures
  • Bonds
  • Residential properties

In case an NRI individual returning back to India sells his/her overseas assets while enjoying the status of RNOR (Resident but not Ordinary Resident) or NRI return, such sale proceeds would not be taxed in India. In case the individual wants to purchase a house in India from such sale proceeds, the individual needs to receive the amount in an overseas bank account from where the individual can remit full or part proceeds in India without creating any tax liability.


NRI Income Tax Slab Rates


The tax slab rates applicable for NRI individuals for the financial year 2018-19 is as below:

Taxable Income Slab

Income Tax

Up to INR 2,50,000

Nil

INR 2,50,000/- to INR 5,00,000/-

5% of (taxable income - 2,50,000)

INR 5,00,000/- to INR 10,00,000/-

12,500/- 20% (taxable income - 5,00,000)

Above INR 10,00,000/-

112,500/- 30% of (taxable income - 10,00,000)

Surcharge

• 10% of the Income Tax, where taxable income is more than INR 50 lacs and up to INR 1 crore.

• 15% of the Income Tax, where taxable income is more than INR 1 crore.

•  Marginal relief on surcharge available

Education Cess

3% of (Income Tax Surcharge)