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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 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.
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).
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.
As an NRI, you are eligible to claim several of the deductions listed under section 80C. These include:
Here are some tax deductions that are available to ordinary Indian Citizens, but not to NRIs
The Income Tax Rates for NRIs are not that complicated. You can check them in the table below
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 on them. The Wealth Tax has been abolished in India since 2015, and you will not have to pay to Wealth Tax anymore.
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.
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Q: Are persons resident in India required to surrender foreign exchange acquired/held by them?
A: Yes. Residents receiving foreign exchange from abroad by way of gift, inheritance, remuneration for services rendered, etc. are required to bring it to India within three months acquiring the...
Q: Are Returning Indians permitted to acquire fresh foreign currency assets by remittance from India?
A: Yes, provided the funds for the purpose are drawn out of their Resident Foreign Currency Accounts
Source : Reserve Bank Of India
Q: Do resident donees or legal heirs require the Reserve Bank permission to receive or hold foreign currency assets by way of gift or inheritance from Returning Indians or from those holding assets since prior to July 8, 1947 with the permission of the ..?
A: No. Resident donees or legal heirs of the persons covered under the general permission/exemption granted by the Government of India can continue to maintain their foreign currency assets provided...
Q: What is the Resident Foreign Currency Account Scheme?
A: This is a Scheme drawn up by the Reserve Bank permitting Returning Indians to open foreign currency accounts with banks in India for holding funds brought by them to India. This facility replaces...
Q: Are OCBs required to produce any certificate regarding ownership / beneficial interest in them by NRIs?
A: Yes. In order to establish that the ownership/beneficial interest in any OCB held by NRIs is not less than 60%, the concerned body/ trust is required to furnish a certificate from an overseas...
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