India has one of the largest Non-Resident citizens in the world today, numbering over 30 million. NRIs are an economic force to reckon with, and they contribute much to the Indian as well as the global economy. If you’ve decided to settle abroad, you may still be earning an income from the assets at home or you may have several bank deposits in India. If you are an NRI and is not sure about the income tax that you have to pay in India, you should be aware of the new income tax rules for NRIs
We are here to clear the sheet for you. Indian Income Tax Rules for NRI are different than an ordinary Indian citizen’s taxes. Service Tax, Income Tax, Property Tax and other Tax Deducted at the Source (TDS) are levied on ordinary citizens of India. However, as an NRI, you should mainly be concerned only with Income Tax, as NRIs are exempt from many taxes. So, here are the Income Tax Rules for Non Residents.
Your NRI Status For The Year
Your taxability in India depends on what your NRI status is for the current financial year. Any Indian citizen who leaves the country for a job or to serve as crew in an Indian ship for more than 182 days (6 months) in a year is considered an NRI for tax purposes. For example, if you have been sent on a short-term project abroad and you have been earning in foreign currency, then it is taxable in India provided you’ve lived in India for more than six months that year. So being clear about your NRI status for the year is the most important first step to filing your tax returns in India.
Are You Considered An RNOR (Resident but not Ordinary Resident)?
If you are an NRI who has recently returned permanently to India, your income will not immediately become taxable. The RNOR (Resident but not Ordinary Resident) status is the transitional phase between being an NRI and a regular citizen of India. If you have been a non-resident Indian for 9 consecutive years, you will remain an RNOR for two years after your return to India for tax purposes.
In these two years, any income earned from outside of India will not be taxable in India unless your business or source of income is based in India. After the two years, however, your “global earnings” will be taxable in India. Remember that you are liable to disclose all your foreign assets and income in the tax returns. Not doing so could be penalized stringently under the new Undisclosed Foreign Income and Assets Bill (2015).
Is Your Income From Abroad Taxable?
Whether your income from abroad is taxed in India depends upon your residential status for the year. If you are deemed a “resident” of India, then your global income (i.e. income earned outside India) will be taxable. If your status in NRI for that year, then only the income you have earned in India will be taxable. This will include any salary you’ve earned in India, capital gains from any assets in India, income from Fixed Deposits (FD), income from any interest in your savings account, rent from any house you own in India. So, if your status is NRI, then your income from abroad will not be taxed in India.
Deductions And Exemptions For NRIs
As an NRI, you are eligible to claim several of the deductions listed under section 80C. These include:
- Life Insurance Premium Payments
- Interest on Education Loans taken from India
- Children’s tuition fee payment
- Unit-linked Insurance Plans
- Principal repayments for Housing Loans taken from India
- Donations towards certain social causes
- Premium paid for Health Insurance
Deductions Not Allowed To NRIs
Here are some tax deductions that are available to ordinary Indian Citizens, but not to NRIs
- Investment in PPF (Public Provident Fund)
- Post office deposit schemes
- Senior Citizens Savings Scheme
- Investment in NSCs
Income Tax Rates For NRIs
The Income Tax Rates for NRIs are not that complicated. You can check them in the table below
| Income | Tax Rate |
INR 250,000 or below
| Exempt
|
INR 250,000 – INR 500,000
| 10%
|
INR 500,000 – INR 1,000,000
| 20%
|
INR 1,000,000 or above
| 30% |
Tax On Gifted Property
If you are an NRI living abroad and you wish to gift a major asset like a house or a car to your relatives, then there is no tax gifted property. The Wealth Tax has been abolished in India since 2015, and you will not have to pay to Wealth Tax anymore.
Avoiding Double Taxation
One major concern for any NRI is double taxation, that is, paying taxes in your country of origin as well as your country of residence for the same income earned. You can avoid double taxation under the DTAA (Double Taxation Avoidance Agreement). India has DTAAs with over 80 countries. There are two methods under DTAA – exemption method and tax credit method. By the exemption method, income taxed in one country will not be taxed by the other country. In the tax credit method, if your income is taxed in both countries, you can seek tax relief in the country of your residence.
We hope this article about the income tax rules for NRIs in India has made the confusing process of filing your NRI tax returns a little easier. Please drop us a comment below for further queries or clarifications.