Income Tax Rules for NRIs: Taxes received from the citizens are the backbone of the Indian economy. Without any tax collection, the economy of any nation cannot foster and grow. In India, taxes are accumulated from Indians. But for those Indian citizens who earn outside India, the income tax rules and perks are different from those applicable to Indian residents. The article below will discuss Income Tax for Non-Resident Indians (NRIs) and how they differ from resident Indians.
NRI or Overseas Indians or persons of Indian origin (PIOs) are the ones who are born or descended from India and living outside the Republic of India. According to law, a non-resident pertains only to the tax status of a citizen who, as per the 1961 Income-tax Act, has not lived in India for a designated period for the Income Tax Act purpose. According to Income Tax, a ‘Non-Resident’ is defined as a person who was present in India for less than 60 days through the relevant tax year. Additionally, when an Indian citizen or a person of Indian origin outside India visits India in any year, he would be considered as a Non-Resident if his total stay in India is of 182 days in a financial year or 365 days spread out over four consecutive years and at least 60 days in that year.
Taxable Income Types for NRI
A Non-Resident is responsible for tax only on that income which he earns in India. Income received outside India is not taxable. The income is earned in India if it is directly or indirectly received in India or accrues or arises in India. The income will be taxed as per the slab rate. Following are details of the income types that are taxable as per the Indian laws:
- Salary Income: Despite being an NRI, if the salary is paid regarding any service rendered in India, it shall be taxed. Moreover, suppose the employer is an Indian government and the employee a citizen of the country, and the employer is accruing income by rendering service outside the country, it will be taxable.
- Income from the Home Property: The income from a property situated in India is taxable for an NRI. The estimation of this income is similar to the citizens of India. Besides, an NRI can claim an average Abatement of 30%, deduct taxes of property, and also gain benefits of an interest deduction if they have a Home Loan. If the NRIs tenant pays the rent to their Indian account or the account abroad, the tenant can deduct 30% as TDS.
- Income from Other Sources: The other sources comprise income from fixed deposits and savings accounts held in banks located in India. Further, Interest accrued on NRE and FCNR is free of tax. On the other hand, Interest earned on an NRO account is fully taxable for an NRI.
- Investments and Deductions: Deductions is not allowed under section 80c of the income tax department while calculating certain assets from which income is received in foreign currency, such as:
- Public or private Indian company Stocks
- Public organisations or Banks Deposits
- Debentures published by non-private Indian companies.
- Security by Central Government
- Central Government other assets as designated for this purpose in the authorised gazette
DTAA (Double Tax Avoidance Agreement) is a link between two or more nations to evade paying double taxes. However, It doesn’t imply that an individual can avoid taxes but guarantees that no NRI pays higher taxes in both nations. The Double Tax Avoidance Agreement makes the listed countries an attractive destination, ensuring lower tax inferences on revenue earned in India. The double taxes payments can be circumvented under DTAA on the income types given below:
- Indian Salary
- Savings Bank Accounts in India
- Services rendered in India
- India’s Real Estate Property
- Fixed Deposits in India
Deductions and Exemptions for NRI
Income Tax for NRIs also involves deductions and exemptions under various sections for different forms of investments.
- NRIs can assert the same tax deduction advantages under section 80C as those available to resident Indians. Some of the Section 80C expenses are premium compensation for life insurance, investments in ULIPs and ELSS, term deposits, pension schemes, etc. However, they cannot claim tax benefits on expense avenues such as National Saving Certificate, Public Provident Fund or saving schemes for senior citizens, as they cannot invest in these options.
- Apart from 80C deductions, NRIs can likewise claim the other deductions available to resident Indians under the Income Tax Act, 1961, such as relevant deductions under section 80D, 80E, 80G, 80U and Section 54.
- Income Tax is exempted from income earned from Foreign Currency Non-Resident (FCNR) and Non-Resident External (NRE).
- Dividend income earned by retaining the shares of Indian companies is excluded from income tax in India.
- NRIs are also permitted to claim tax exclusion under section 54, 54EC and 54F on long-term capital accruals.
FAQ’s on Income Tax Rules for NRIs
What documents are needed for the NRI account?
The documents needed for the NRI account are a Copy of a valid visa, work permit, Overseas Resident Card and address proof.
What happens when the additional PAN number is not surrendered?
Firstly, it is prohibited to have two PANs, and therefore if the additional pan is not surrendered, the punishment for such offence is Rs.10,000/-.
Who is the RNOR?
RNOR is an acronym for Resident but Not Ordinarily Resident. It is a transitional residential status allotted to returning NRIs before they become a resident of India. RNORs are taxed on par with NRIs for Indian income tax purposes