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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..
Revenue Secy: Some people are residents of no country. They may be staying in different countries for certain number of days. So if any Indian citizen is not a resident of any country in the world, he’ll be deemed to be a resident of India & his worldwide income will be taxed.(2/2) pic.twitter.com/Q2PwMMmoFt
— ANI (@ANI) February 1, 2020
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.
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. Check – All you want to know about NRI TDS
- 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_ID||Income Slabs||Tax Rate|
|1||₹0 – ₹ 2,50,000||No tax|
|2||₹2,50,000 - ₹5,00,000||5.00%|
|3||₹5,00,000 - ₹7,50,000||10% (20% earlier)|
|4||₹7,50,000 - ₹10,00,000||15% (20% earlier)|
|5||₹10,00,000 - ₹12,50,000||20% (30% earlier)|
|6||₹12,50,0000 – ₹15,00,000||25% (30% earlier)|
|7||> ₹15,00,000||30% (same as before)|
|Income Slabs||Tax 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.
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.
Budget impact on NRIs
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.
Read – All you want to know – Aadhar Card NRIs
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.
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|
|37||Income < ₹ 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.
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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.