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New Indian Tax Rules for NRI – 2020 Good & Bad News

We have created this page to share the latest news about NRI tax in India. We update this on a regular basis & share NRI new tax rules & laws – how that can impact NRIs.

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new indian tax rules for nri

Updated – February 2020

New Tax Laws for NRI in India

Budget is the time for the Indian Government to introduce new tax rules & laws but this year they have broken all records – changes & confusion especially for NRIs is making a new peak.

A Significant Impact of Budget 2020 on NRIs

The budget for the financial year 2020-21 was presented by Finance Minister Nirmala Sitharam on 1st Feb 2020. Let us look at its impact on NRIs –

Note: This is based on the current information that is available. If there will be any clarification or additional information – I will try to update this.

Definition of NRI

Who is an NRI? Till now, a person who spent 182 days or more outside of India was considered an Indian. This has been changed. As per the changes in the Income Tax Act, Indian citizens who spend at least 245 days out of India will be considered as NRIs. The relevant authorities’ have analysed that there are many people who are carrying out income-generating activities from India but manage their period of stay in India such that they remain NRIs.  This change is brought to bring them under the tax net.

Until now, individuals who go out of India for employment were considered as NRIs if they stay in India for less than 183 days. This duration of stay is now reduced to 120 days.

The definition of NRI is changed – we think this is the biggest change for NRIs after independence.

wiseNRI

Tax on Global Income

This one is huge – India just has become the second major country in the world which can tax its citizens on the global income.

To qualify as NRIs, Indians will have to be tax residents of another country apart from the stay regulations that I mentioned above. If the NRI is not paying tax because of visa status or domicile status. The NRI will be considered as an Indian resident as per the Income Tax Act and their total income would be taxable in India.

There’s some confusion in this but I think this tweet clarifies lot of doubts..

The government also issued one more clarification after this but tax experts are not satisfied.

Let’s take 3 scenarios to clarify this

This is just based on my understanding & you can add your inputs in the comment section.

Will there be a tax on the salaried individuals in the UAE or any other middle east country where his income is tax-free?

That’s the biggest confusion & many media houses are adding fuel to fire. My understanding is their income will not be taxed in India as they are residents of those countries. The only thing is they have to make sure they stay outside India for more than 245 days.

What about Merchant Navy people? 

My View was “Right now their income is tax-free in India & they don’t pay tax in any tax outside India. This budget is a big blow for seafarers as their income will be taxed in India as they are not residents of any country. Even if they will stay outside of India for 245 days – my view is their income still will be taxed in India.”

The government clarified that this change will not be applicable to seafarers but let’s wait for more clarity because 245 days is another challenge. 

What will happen to people who retired from the middle east or running their business & travel a lot?

Lots of people in India especially HNIs were able to avoid tax in India just by making sure that they stay outside India for more than 182 days. Now, this has become history – if you are not resident in some other country you have to pay tax in India.

RNOR

A person or a HUF shall be “not ordinarily resident” in India in the previous year if the person or the manager of the HUF has been an NRI in seven out of 10 previous years preceding that year.

Budget 2020 has proposed that if an individual has been a resident in at least four out of last 10 financial years, then the individual will be determined as ordinarily resident. This means these NRIs will be required to pay tax on their foreign income and report foreign assets in their income tax return (ITR) in India. Moreover it is proposed to remove the clause that the individual should be physically present in India for more than 729 days in last 7 years to get the status – ‘Ordinarily resident’. This would make the ‘not ordinarily’ resident to ‘ordinarily resident’ easily if he was resident individual in four years out of the 10 previous years.

Check – All you want to know about RNOR Status

NRI Need To File Tax In India

There are certain cases in which NRIs need not file taxes –

  • The NRI’s total income consists of only interest, dividend, royalty and fees for technical services (FTS).
  • TDS on such income has already been deducted under the provisions of Chapter XVII-B of the Act at the rates that are higher or equal to those prescribed under sub-section (1) of section 115A.
  • Interest payment made to NRIs on investments in bonds including Municipal Bonds, which would be offered at a concessional withholding rate of 5 per cent until June 30, 2023.

New Tax Slabs 

There are changes in the tax slabs as well that an NRI has to be aware of when paying taxes for the next assessment year –

Tax Slab 2020

wdt_IDIncome SlabsTax Rate
1₹0 – ₹ 2,50,000No tax
2₹2,50,000 - ₹5,00,0005.00%
3₹5,00,000 - ₹7,50,00010% (20% earlier)
4₹7,50,000 - ₹10,00,00015% (20% earlier)
5₹10,00,000 - ₹12,50,00020% (30% earlier)
6₹12,50,0000 – ₹15,00,00025% (30% earlier)
7> ₹15,00,00030% (same as before)
Income SlabsTax Rate

The changed income tax rates and slabs will be applicable for those who are ready to forego certain exemptions and deductions. These deductions include Standard deduction, allowances under Section 80C and Section 80D and LTA and HRA exemptions. It also includes interest on housing loan on the self-occupied property and a few other factors.

Check – NRI Tax Rates

These changes will come into effect from the financial year 2020-2021 if all proposals are accepted.

July 2019

If you are interested in last year’s budget – you can check this…

How 2019 Budget Impacted NRIs

The current budget was presented by the finance minister, Nirmala Sitharaman. She was an NRI but did that helped her in understanding concerns of NRIs?

Budgets are becoming nonevent as governments don’t wait for one year to announce changes. If they think something is important they introduce it anytime.

2019 Budget NRIs

Budget impact on NRIs 

NRI Gift

If an NRI receives a gift which has a value of ₹ 50,000 or more from anyone apart from relatives, the NRI has to disclose it and pay tax as applicable. The gift can be anything like cash, property etc. If the NRI has no other income but gets a gift the value of which is equal to or greater than ₹ 50,000, from a non-relative, the NRI has to file income tax returns.

Since the gift is accrued in India, it is considered taxable. Earlier such gifts were not taxable for NRIs as it was not mentioned explicitly. Relatives include parents, spouse, siblings, siblings’ spouse, children, children’s spouse, grandparents, grandchildren and grandchildren’s spouse.

The value of the gift received by an NRI is added to the other income if any, and taxed as per the income tax slab applicable unless a double taxation treaty disallows the taxation of the same.

This is brought under the purview of taxation to prevent the inappropriate transfer of money or property.

Must Read – NRI Gift Tax

Interest on Bonds

Interest earned on rupee-denominated bonds, taken between September 17, 2018 and March 31, 2019 has been exempt from income tax.

Aadhar Card for NRIs

NRIs had to wait for 180 days to get their Aadhaar card. But the FM has proposed a change. NRIs will get it on arrival to India once the application formalities are completed.

Before budget changes were announced in – NPS for NRIs

Black Money Act

Non-resident Indians (NRIs) who flee abroad to avoid prosecution will fall under the ambit of the Black Money Act with retrospective effect. This will enable law enforcement agencies to go after undisclosed foreign assets and money parked abroad.

Surcharge

The surcharge on tax payable by NRIs has increased –

Surcharge (%)Income Slab
10₹ 50,00,000 < Income < ₹ 1,00,00,000 post deduction
15₹ 1,00,00,000 < Income > ₹ 2,00,00,000 post deduction
25₹ 2,00,00,000 < Income > ₹ 5,00,00,000 post deduction
37Income < ₹ 5,00,00,000 post deduction

NRI Portfolio Investments

NRI portfolio investment route will be merged with the foreign portfolio investment route. (this has created another complexity as FPI were charged higher taxes – clarity on this is awaited) Check  – PIS Scheme NRI

Mutual Fund Taxation

No additional income-tax shall be chargeable in respect of any amount of income distributed, on or after the 1st day of September, 2019, by a Mutual Fund of which all the unit holders are non-residents and which fulfills certain other specified conditions. This is not clear as there are no such funds as of now and it is only applicable for ‘additional’ tax.

Read – Mutual Fund Tax for NRIs

Do keep in mind the new changes before filing your taxes for the next financial year.

If you think this post was helpful – must share it with your friends.

If you have any questions on the new tax rule for NRI in India or you have any inputs/clarity on new tax laws – please feel free to add in the comment section.

new indian tax rules for nri

About the Author

Hemant Beniwal is a CERTIFIED FINANCIAL PLANNER and his Company Ark Primary Advisors Pvt Ltd is registered as an Investment Adviser with SEBI. Hemant is also a member of the Financial Planning Association, U.S.A and registered as a life planner with Kinder Institute of Life Planning, U.S.A. He started his Financial Planning Practice in 2009 & is among the first generation of financial planners in India. He also authored Bestseller book "Financial Life Planning".

  • ANIL says:

    CAN NRI HOLDING AND CONTINUING PPF WHILE RESIDENT STATUS CAN CONTINUE INVESTING EVERY YEAR IN THAT PPF

  • Gopala says:

    Is the FD interest taxable

  • Jatin says:

    Can an NRI continue with the Mutual Fund investments every month, which were started when he was a Resident?

    If yes, any change needed or status quo is okay?

    Thanks.

  • Martin says:

    I am an Overseas Citizen of India(OCI).

    (1) After reading through various contents, I assume that an OCI status is equal to that of an NRI for all taxation purpose. Please advise

    (2) Other than voting rights/ participating in Indian elections and owning agricultural lands, are there any other changes or requirments that an person with OCI status should know about taxes or investment in India?

    (3) OCI holders who had property (either self-earned or ancestral) as indian residents earlier…how will capital gains be treated on the sale of the said property.

    I am just expecting brief response in general.

    Thank you in advance for your valuable time

    Regards

    • Pronita says:

      Hello Martin,

      1) Yes, it is equal.

      2) No, there are no other changes.

      3) The Capital Gains will treated normally as it is used to be for all other people.

  • Edgar J. Rebello says:

    It’s still ambiguous as to whether NRIs resident in the Gulf have to pay income tax when we are not taxed in the Gulf. The confusion over the DTAA signed with the UAE to avoid double taxes, is this also signed with other Gulf countries such as Qatar, Bahrain, Saudi Arabia, Kuwait etc…? if so, since we still aren’t paying any tax here, do we need to pay income tax despite staying out of the country for over 240 days and having residence status in the Gulf country?

    • Hi Edgar,
      Just now government issued clarification on your point..
       “In some section of the media, the new provision is being interpreted to create an impression that those Indians who are bonafide workers in other countries, including in the Middle East, and who are not liable to tax in these countries will be taxed in India on the income that they have earned there. This interpretation is not correct.”

  • Krish says:

    Very good article Hemant and you have brought in all exclusive budget changes applicable to NRIs in this article. Felt NRI definition extending upto 245 days from current 182 days seems harsh because I have seen many Gulf residents are taking break in India nearly 4-5 months after working at a stretch for 2-3 years. I am hoping that this would be recalled in future.

  • Sandeep Mehta says:

    Hello,

    How does this impact someone (couple) who are currently settled / citizen in Australia but are planning to return back & settle in India after they retire?

    Also what if they (Citizens of Australia) are planning to spend 6 months in India and 6 months in Australia after they retire?

    Sandeep

  • Bala says:

    I have NRE FD’s in India and so far the interest on these FD’s are tax exempted ireespective of the amount. Now will these interest income will be added to the income and taxed as per the new provisions?

  • Sara says:

    Hi Hemant,

    As you have mentioned, seeks more clarity from the FM office and Tax office. My question is, I got shifted last year (End of 2018) in Middle East for working.
    Now i stayed out of India more than 245 days (less than 120 days) which make my status qualified as NRI. But if you check my RNOR status, out of last 10 years i was Resident of India for almost 8 yrs.
    This mean does i will be treated as Resident and not as NRI and need to pay tax on my global Income ?

    • anuj says:

      Hi Sara,

      As per my Knowledge, According to the Budget 2020 proposal, if an individual has been a resident in at least four out of the last 10 financial years, then the individual will qualify as an ordinarily resident and they will be required to pay tax on their foreign income.

  • Thomas says:

    please let me know of the latest information for tax on interest income from nre( not nro) fixed deposits in Indian banks, done earlier and still gaining interest income.

  • Vikram Mehta says:

    Withholding Tax NRI

    20% withholding tax with surcharge and cess is proposed in finance bill for FY 2020-21.

    My question is for NRI with equity / debt incomes,
    1. What is withholding tax rate?
    2. With above, is it applicable only for dividend? OR Also extended to LTCG and STCG? There are ambiguities for NRI, however for RI this clause was clarified recently by notification that TDS of 10% is only for dividend income and this withholding tax (10% for RI) is not applicable at least in case of CGs..

    Thanks…

  • Vikram Mehta says:

    #InternationalEquity #NRI

    Premise: International Funds and FoF are taxed as debt funds…..STCG tax as per slab rate of income tax…LTCG 20% tax rate with indexation…

    Case: In this aspect, for NRI, Who does not have Indian income other than specifically Indian equity and Indian Equity MFs capital gains…if he invest further in international equity MF and his STCG are capped at let’s say 2.5, 5, 7.5 and 10 L…

    Though 30% TDS with applicable surcharge and cess is applicable however NRI can claim back this tax refund if,
    1. His STCG are below 2.5L for international equity MF and there is no other income except Indian equity and Indian equity MF CGs which is let’s say beyond 10L…Will he liable to be taxed for 2.5 L international MF STCG? Or TDS on those 2.5 L STCG is fully refundable?
    2. Same way wrt 1, for 5, 7.5 and 10L STCG on international equity MF, excess deducted TDS is refundable based on 5, 10, 15% slab tax rates…though he is having CGs from Indian equity MFs which is beyond 10L..

    Kindly clarify / confirm…

  • Padam says:

    Are any clarification of seafarer NRI status?

  • Ajitkumar says:

    I am OCI with a tax residence in Germany. How does the new rule affect my NRI Status?

  • Priyanka says:

    According to budget 2020, do NRI’s have to pay 10% for outward remittance of their own money from India?

    • Anuj says:

      Hi Priyanka

      As per my knowledge, The Budget 2020-21 has mandated a 5 percent tax collection at source for remittances over Rs 7 lakh. But In the case of non-PAN/Aadhar cases, the rate is 10 percent.

  • Vikram Mehta says:

    #Withholdingtax #NRI

    Hi…Hemant Kindly throw some light on this as there are ambiguities for NRI on LTCG and STCG TDS…

    20% withholding tax with surcharge and cess is proposed in finance bill for FY 2020-21.

    My question is for NRI with equity / debt incomes,
    1. What is withholding tax rate?
    2. With above, is it applicable only for dividend? OR Also extended to LTCG and STCG? There are ambiguities for NRI, however for RI this clause was clarified recently by notification that TDS of 10% is only for dividend income and this withholding tax (10% for RI) is not applicable at least in case of CGs..

    Thanks…

  • Vikram Mehta says:

    Dear Hemant,

    Kindly throw some light on the 20% withholding tax as proposed in finance bill for NRI..

    #Withholdingtax #NRI

    20% withholding tax with surcharge and cess is proposed in finance bill for FY 2020-21.

    My question is for NRI with equity / debt incomes,
    1. What is withholding tax rate?
    2. With above, is it applicable only for dividend (20% withholding tax)? OR Also extended to LTCG and STCG? There are ambiguities for NRI, however for RI this clause was clarified recently by notification that TDS of 10% is only for dividend income and this withholding tax (10% for RI) is not applicable at least in case of CGs..

    Thanks…

    • Karan says:

      Hi Vikram,

      As per my knowledge, the tax rate will depend on country to country and it is applicable on all income.

  • Raj says:

    Hi Hemant – thanks for your updates, nice and clear – esp the fact that rules come into place for 20/21 FY.

  • Manish says:

    Is there any change in the definition of NRI in the new budget? All I can find is clause b of explanation 1 has changed.

    • arun says:

      Hi Manish,

      As per my Knowledge, Budget 2020 has proposed to tax NRIs in India, who are not paying tax anywhere in the world. According to the proposal, such NRI taxpayers may be required to pay tax in India.

  • vijay parthasarathy says:

    Hi Hemanth,
    I am a U.S Citizen with OCI retired. We come to India on retirement to spend time with our old parents and take care of them and generally stayed less than 182 days. We were paying taxes on India sourced income. Can the OCI stay 182 days or this new rule is applicable to all. Not able to understand the rationale of this new rule ? US taxes it Citizens on their income. Other countries like Malaysia have retirement visas. Is India screwing itself of foreign exchange? Thanks Vijay

    • Kishan says:

      Hi Vijay

      As per my understanding, OCI also comes under this new rule. Rest you can take help from your Tax consultant.

  • Domnic says:

    I bought a property in February 2020 from a Nri and while making payment deducted TDS and subsequently deposited the TDS in the bank by way of challan in the same month. do I need to file any returns for the same and if yes which form do I need to fill out and when is the last date to file the returns?

    • Shivam says:

      Hi Domnic

      As per my knowledge, you need to file the return to claim the TDS or if you had any other income in India. ITR-2 is required to fill. You can file it upto 31st July 2020.

      • Domnic says:

        Hello shivam,
        Thanks for the reply ,I dont have to claim the Tds as I had deducted the Tds from the seller of the property and deposited it in the bank by way of challan . So do I need to fill the returns for the tds payment for that quarter jan to march.abd I yes which form and the last date for the same.please note that I am an NRI with indian passport and the seller is NRI with British passport

  • Ashok Kumar Kanojia says:

    After return to India permanently, my NRE FDs can continue till maturity. Whether interest on those FDs will be taxable or is there any exemption?

  • PK Agarwal says:

    As per the new rule, the NRI is a person spending 182 days or 245 days outside India?

    • Shiv says:

      Hi PK Agarwal

      It is both depending upon the income of the person. If someone is earning below 15 Lakh a year then 182 days rule will be applicable else the 245 days rule.

  • Rakesh says:

    I am a Tax resident of India & USA but never stayed more than 182 days out of India. Hence, I am filing my tax return in both the countries from last 7-8 years. My main source of Income was ‘Business Income’ from India. However, in financial year 2019-20, I came to USA in Nov.’ 2019 and due to Covid , could not leave USA. I took up a job in USA from 1st Jan.’ 2020. I will be staying for more than 245 days in this trip. Kindly advise:
    1. whether I will be treated NRI for any of the 2 financial years i.e. 2019-20 and 2020-21 or 245 days stay is applicable for a relevant financial year.
    2. Since, my 3 month’s Salary will be added in India, whether, I will be entitled for Standard deduction and TDS deduction by US IRS.
    3. What is the applicability of ‘Double Taxation Treaty’ for Resident Indians.

  • Abinash says:

    Came to UAE in Dec 14. Intend to leave on 02 October for good. Do I get RONR status? And for how long?

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