Let’s check Tax Implications on Different Sources of Income for NRIs in India – also check tax rates for NRIs.
Some NRIs do earn income in India as well.
If this income exceeds the basic exemption limit, NRIs have to file income tax returns. Even if the tax is paid or deducted, tax returns should be filed.
Tax Rate For NRIs on Indian Income
|Taxable income||Tax Rate|
|Up to Rs. 2,50,000||Nil|
|Rs. 2,50,000 to Rs. 5,00,000||5 %|
|Rs. 5,00,000 to Rs. 10,00,000||20%|
|Above Rs. 10,00,000||30%|
Let us look at different income avenues for NRIs and the taxation rules regarding the same –
Income from Salary
You might have become an NRI in the middle of a financial year. In such a situation, you might have earned salary in India for part of the financial year. You have to pay income tax as per the income tax slab that is applicable to you for the total income earned in India.
Income from Interest in Resident Accounts
You might have earned interest on amount in savings accounts and fixed deposits before you became an NRI. Under Section 80TTA, deduction up to Rs. 10,000 is allowed on interest income from bank savings accounts.
The interest earned in Fixed deposits is added to the total income and taxed as per income tax slab applicable.
*It is important to close all bank accounts that are residential when you become an NRI.
Income from Interest earned in NRO, NRE and FCNR accounts.
Interest on NRE and FCNR account is tax-free.
Interest on NRO account is taxable. It will be added to the total income and taxed as per income tax slab applicable.
Check – Investment Options of NRIs
Income from rent
NRI owns a property and gives it on rent to a tenant.
The tenant deducts TDS at 30% of the rental income before paying the rent to the NRI.
The rent received is added to the total income which is liable to tax as per the applicable slab rates.
The following deductions should be considered –
- Municipal taxes paid,
- standard deduction of 30% on taxable value
- deduction for interest on loan taken for buying, constructing or repair of home
- Repayment of principal amount of home loan up to Rs. 1,50,000
If you have two properties, one will be considered as deemed let out property and you will have to pay tax on it.
The rent will have to be deposited in NRO account of NRI landlord. This money cannot be credited in NRE account as long as a tenant is also an NRI.
Income from Real Estate capital gains
An NRI who sells a house property and earns capital gains is liable to pay tax it’s same as resident Indian.
BUT for NRIs Long-term capital gains are subject to a TDS of 20%. Short-term capital gains are subject to a TDS of 30%. (U/S 195) The gains are considered short-term if the house is sold within two years of purchase.
You can get an exemption if
- You invest in a house property as per Section 54 within one year before the date of transfer or 2 years after the date of transfer or complete construction of a house within 3 years after the date of transfer of the capital asset
- You invest in capital gain bonds as per Section 54EC within 6 months of date of transfer.
In the case of NRI TDS is deducted on the total Sale Value of the property (not just gains) – even if the property value is less than 50 Lakh. If there’s not gain, NRIs can claim tax refund later.
Income from capital gains in other assets
Income from capital gains earned from other assets like stocks, mutual funds will be taxed. Long term – 10% tax, without indexation, is applicable for capital gains from all direct equity and equity mutual funds, if the gains are more than Rs. 1,00,000.
Short-term capital gains are taxed at 15%
Long Term Capital Gains on mutual funds other than equity funds are taxed at 20% with indexation for listed funds and 10% without indexation for non-listed funds.
Short Term Capital Gains on non-equity mutual funds are taxed at 30%.
Receipt of Gifts
Gifts received from relatives as defined in the Income Tax Regulations are exempt from tax.
Gifts received from non-relatives up to the value of Rs. 50,000 are exempt from tax. Beyond that, the gift value is added to the total income and taxed as per applicable income tax slab. (Check tax & other issues – Gift by NRI to Resident Indian or Vice Versa)
If you are an NRI, calculate the income received in India, and if it is above the exemption limit, do file your tax returns within the due date.
Feel free to ask queries or if you have any practical experience regarding taxation – must share in the comment section.