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5 Simple Tax Strategies for NRIs

As a Non-Resident Indian (NRI), you are subject to taxation laws applicable in India.

There are a few advantages and many disadvantages of the tax policy for NRIs. But you can make the best use of these tax strategies for NRIs

tax strategies for NRIs

Advantages

  • Interest earned in NRE savings accounts and FCNR accounts is tax-free.
  • Tax on capital gains earned from the sale of house property is exempt if the gains are invested in a house property or capital gains bonds within a certain timeframe.
  • NRIs are taxed only 20% on income received on certain investments such as shares in an Indian company, deposits in banks and public companies and central government assets and securities. If this is the only income earned, the NRI is not required to file IT returns.

Check – All about FCNR Deposit for NRI

Disadvantages

  • As a senior citizen NRI, you will not get the higher exemption limit enjoyed by senior citizens who are residents. If your income in India exceeds Rs. 2,50,000, you have to pay tax.
  • Rental income is subject to 30% TDS.
  • Long term capital gains on the selling of house property attract 20% TDS.

It is important to strategize our financial planning and tax planning so that we pay the right amount of tax.

Detailed Post – NRI Mutual Fund Taxation

Tax strategies that NRIs can consider 

 1) Open an NRE Account

An NRE account can be a savings, fixed or recurring deposit account. The principal and interest amounts are exempt from tax in India.

You can also repatriate principal and interest components from India to your country of residence without any tax liability. All popular banks in India offer NRE account services.

2) Use DTAA as an effective tool to avoid double taxation

Nobody likes to pay taxes twice on one income source. Therefore India has signed a treaty called the Double Tax Avoidance Agreement (DTAA) with many countries. Individuals can use the provisions of this agreement to avoid double taxation. You can claim relief from double taxation in three ways –

  • The exemption method follows the Tax deducted at Source (TDS) method. You are taxed in one country and exempted from tax in the other.
  • The deduction method ensures that tax is paid in the country where income is earned and is subtracted from the total global income. Then tax in the other country is calculated on the difference between income earned and tax already paid in one country.
  • The tax credit method provides relief up to the extent of tax paid in one country.

DTAA Application Form – Form 10F should be obtained from the income tax department and verified by the government of the country where you reside.

WiseNRI

3) Use RNOR status effectively

If you have just returned to India, you can make use of the Resident but Not Ordinarily Resident (RNOR) status.

A person with the ‘RNOR’ status will have to pay tax only on income received or accrued in India.  Income earned abroad will not be taxed in India. Withdrawals from accounts abroad, rent received abroad and capital gains earned abroad will be tax-free in India. The RNOR status can be used to your advantage for three financial years from the date you returned to India.

 Read this: All You want to know about RNOR Status

4) Deductions applicable for NRIs

Most deductions allowed for residents are allowed for NRIs with respect to tax calculation. So you can get the deduction for the following –

  • Interest paid on home loan for home and loan in India.
  • Premium paid for health insurance of self, spouse, children, and parents
  • Interest paid on education loans
  • Donations under Section 80G
  • Interest income on NRO savings bank accounts up to a maximum of Rs. 10,000

Use these deductions wisely to optimize your tax payment.

For example, if you know you are going to return to India and want to own and live in your own house, you should consider buying one using a home loan. If you have dependent parents in India, you should buy health insurance for them.

Check – NRI Latest Tax Rates

5) Advance Tax and Tax Refund

As an NRI, you are also liable to pay advance tax. If your tax liability in a financial year exceeds Rs 10,000, you have to pay advance tax. If you have missed paying it, you will have to pay interest. Advance tax can be paid on or before 15th June, 15th Sept, 15th Dec, and 15th March.

Similarly, you are entitled to a refund in case you have paid excess tax. The excess tax is automatically refunded to you provided you have filed your IT return and verified your IT return within the given deadlines for the financial year.

You have to be careful while managing your taxes. As an NRI, you have to manage taxes in more than one country. This takes effort, time and knowledge of tax regulations.

You may take the help of a financial planner or tax advisor if you are not comfortable managing it on your own. Once you are confident, you may even opt to do it yourself.

Please add your tax strategies which can be useful for other NRs. Also, feel free to add your questions in the comment section.

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".

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