Unlocking the complexities of Income Tax for Non-Resident Indians (NRIs) can lead to substantial savings and financial well-being.
In this comprehensive guide, we delve into the world of exemptions, deductions, and allowances, shedding light on how NRIs can navigate the Indian tax landscape effectively.
Must Read – Tax rates for NRI
What are the Exemptions allowed for NRIs while calculating tax payable?
- An NRI has the same exemptions as a Resident. There is the basic Exemption of Rs. 2,50,000 for NRIs of less than 60 years of age, Rs. 3,00,000 for NRIs between the ages of 60 years and 80 years and Rs. 5,00,000 for Super Senior NRIs.
- Income which is earned outside India is not taxable in India.
- An NRI is not liable to pay tax on interest earned on an NRE account and FCNR account.
- If an NRI invests in certain special investments, his tax liability is 20% on the income earned on these investments. If this is his only income in India and TDS is deducted on it, he is not even required to file an income tax return. He can file returns if he wishes to do so though.
- Long-term capital gains can be exempted under Section 115F if the gains are invested in any of the following –
- Bank Deposits
- Deposits or Debentures in Indian public companies
- Central Government securities
- NSC VI and VII issues
- Shares of an Indian company
Must Read- How Can NRIs Save Tax In India?
What are the Deductions allowed for NRIs while filing tax returns?
NRIs have similar deductions as applicable to Resident Indians that can be used for reducing the total taxable income. These deductions include –
- Life Insurance Premium Payments for self, spouse or children.
- Medical/ Health Insurance premium payments for self, spouse, parents and dependent children.
- Investments in Unit-linked Insurance Plans
- Principal amount repayment of Home Loans taken from India. This includes amount paid towards stamp duty, registration etc.
- A maximum of Rs. 2,00,000 for interest paid on a home loan availed of in India.
- Interest on Education Loans availed of in India
- Children’s tuition fee payment for play school, nursery, school, college or university education.
- Donations for certain causes as per Section 80G
What are the Allowances allowed for NRIs while filing tax returns?
Some allowances for NRIs are –
- An NRI who has returned to India will be treated as a ‘Resident but Not Ordinary Resident (RNOR)’ for 2 years if the NRI has been an NRI for 9 out of 10 preceding financial years OR if the NRI has lived in India for 2 years or less in the last 7 financial years. Therefore from a tax perspective, they will still not be treated as Resident Indians.
- Deposits held in foreign currency will be exempt from tax for NRIs returning to India for up to 2 years.
- If an NRI earns money in the foreign country, he need not pay tax in both countries. He can avoid double taxation using the DTAA between India and the country that he resides in. He can claim tax relief either using tax exemption method or tax credit method.
Ten FAQs on NRI taxation with links to detailed articles
1. What is the tax status of NRIs in India, and how is it determined?
NRI tax status is determined by the individual’s physical presence in India during the financial year. If you spend less than 182 days in India in a financial year, you are considered an NRI. Check – who is NRI
2. What are the key sources of income that NRIs need to pay taxes on in India?
NRIs are required to pay taxes in India on income earned from sources within India, such as salary, rent, capital gains, and interest income. Read – NRI Mutual Fund Taxation
3. How does the Double Taxation Avoidance Agreement (DTAA) affect NRI taxation?
DTAA is a treaty that India has with many countries to avoid double taxation. It can provide relief to NRIs by reducing or eliminating tax liability in both India and the NRI’s resident country.
4. Are NRIs required to file an income tax return in India, and if so, what is the due date?
Yes, NRIs are required to file an income tax return in India if their taxable income exceeds the specified threshold. The due date for filing is similar to resident Indians.
5. How is rental income from property in India taxed for NRIs?
Rental income is taxable in India. NRIs can claim deductions for property-related expenses, and the tax rate varies based on the individual’s income.
6. Are there any tax exemptions or deductions available to NRIs for investments in India?
NRIs can avail of certain exemptions and deductions for investments in specific schemes, like NRE/NRO fixed deposits and mutual funds.
7. What are the rules regarding taxation of NRI’s income earned outside India?
Income earned outside India is typically not taxable in India, but it’s essential to understand the implications of remittances and foreign assets.
8. How is capital gains tax calculated for NRIs when selling property or investments in India?
Capital gains tax depends on the holding period and type of asset. Short-term capital gains are taxed at a higher rate, while long-term gains may have indexation benefits. There will be higher TDS for NRI.
9. What is the tax treatment of gifts and inheritance received by NRIs from relatives in India?
Gifts received from relatives in India are generally tax-exempt. However, gifts from non-relatives may be subject to tax. Inheritance is not subject to tax in India.
10. How can NRIs ensure compliance with Indian tax laws and optimize their tax liability?
NRIs should consult with tax professionals who specialize in NRI taxation to ensure compliance, understand DTAA benefits, and leverage available deductions to minimize tax liability.
If you are an NRI and are filing tax returns, understand the deductions, exemptions, and allowances and use them wisely to reduce your tax outgo. If you have any questions – add in the comment section.
Any electronic book is available for purchase on NRI tax implications on sale of property and investments in India.
Do NRIs have indexation benefit while calculating Capital gain arising from sale of old land/house bought before 2000?
Yes, Non-Resident Indians (NRIs) are eligible for the indexation benefit when calculating long-term capital gains (LTCG) arising from the sale of a property, including land or house, bought before 2000.
For NRI, is the standard deduction of Rs 50K applicable?
Hello Suresh,
No, the standard deduction of Rs 50,000 is not applicable to NRIs (Non-Resident Indians) for income tax purposes.
Are NRIs taxed on Dividends received from listed stocks or mutual funds in India ?
Hey Sai!!!
Yes, NRIs (Non-Resident Indians) are taxed on dividends received from listed stocks and mutual funds in India, but the tax treatment varies slightly from residents.
Long-term capital gains can be exempted under Section 115F if the gains are invested in any of the following – Bank Deposits – How is this possible? If interest is accured in 5 year FDs it will be treated as Capital Gains?
I am a NRI in London I have been paying my house loan since 10 years can I claim any tax returns for paying interest for so many years please advise
Some MF like SBI MF calculate LTCG taking purchase pricexcost of living index nowdiv by cost of living at purchase date/ Most MF do not give benefit of this. I dont remember if ITR2 sch Capital gains allows benefit of what SBI follows. Other two factors discouraging investments in India are
1. very poor customer service. Even funds like Templeton MF have failed to adopt code of Ethics followed in USA
2. Too much paperwork and inflexible attitudes like filing PAN, KYC,CKYC., FATCA Changing address in PAN which is often inevitable is as troublesome as getting a new PAN.
RBI has instructed Banks to help Customers in getting CKYC after REKYC but it often does ot happen. In USA in last 22 yrs I have not filed a written Grievance. Talking on mobile phones is the tool for resolving any problem
3. Dollar to Re ratio change possibly wipes out impressive gains achieved by investments in India
The interest earned on nre deposits is tax exempt in India . Is this interest earned in India on NRE deposits is taxable in usa and is it compulsory to report there this interest earned in India
Is Dividend income for NRIs is anyway taxable at 20% irrespective of slabs and basic exemption?
Can a NRI treat capital gains income from equity capital gains from India as part of his general income from India and apply basic exemptions and also tax it under normal slab system?My auditor says that NRI equity capital gains and dividend income are special category income for NRIs and that NRIs cannot claim TDS back even though they are not in 10% or 20% income tax slab! Where as my other NRI friends are successfully claiming TDS deducted on NRI dividends. Can you clarify?
Do NRI pay tax on long term capital gains from the sale of parental property OR is it tax free. Parents built the house in 1957 and they died in 1981. Property is being sold now in 2023.