A clear understanding of the unique tax implications and regulations under the Income Tax Act, 1961 is required to understand the complexities of income tax in India as a Non-Resident Indian (NRI). As NRIs engage in various financial transactions and investments, it becomes essential to grasp the unique tax implications that govern their income and assets within the Indian tax laws.
NRIs are taxed on income generated or received in India, and the tax rates vary based on the nature of income. It is essential for NRIs to comply with Indian tax regulations and fulfil their tax obligations to avoid legal consequences.
Income Tax is the money you pay to the government based on the income earned or profit gained from the resources and assets in India.
The Central Board of Direct Taxes (CBDT), part of the Ministry of Finance in the Indian government, is mandated to levy income tax under the Income Tax Act of 1961.
The government uses this money to provide services, fulfil its duties, and offer goods to the people.
The Income Tax Act, 1961 is the main law that deals with income tax in India. It was made by the Indian government on September 13, 1961, and has been changed many times.
This law does a few important things:
Defines income tax
Declares the tax rates
Prescribes the rules and procedures for calculating and paying tax
Provides for the administration and enforcement of the income tax laws
In the Income Tax Act of 1961, there are different parts like Section 80C, Section 80D, Section 80G, Section 10(10D), and more. These parts have details about tax exemptions, deductions, and limits of tax payment. The income tax benefits help you lower the income tax liabilities and work out your tax responsibilities correctly.
If you are an NRI, here is a quick update on the old vs. new tax regimes in India for the Financial Year 2023-24 (FY 2023-24) and Assessment Year 2024-25 (AY 2024-25).
Old Tax Regime (FY 2023-24): You need to pay income tax if you earn more than Rs. 2.5 lakhs per year from your assets and services in India.
New Tax Regime (FY 2023-24): If your annual income from India exceeds Rs. 3 lakhs, you are required to pay taxes to the Government of India.
The following category of taxpayers must pay income tax in India:
NRIs earning income from India
Resident individuals
Hindu Undivided Families (HUF)
Bodies of Individuals (BOI)
Associations of Persons (AOP)
Local Authorities
Corporate Firms
Companies
Artificial Juridical Persons
The taxpayers in India are categorized as follows on the basis of residential status:
Resident Indian
Non-Resident Indian (NRI)
NRI with RNOR (Resident but Not Ordinarily Resident) - RNOR status is applicable for NRIs returning to India
Nature of Income | Residential Status | ||
Resident Indian | NRI with RNOR | Non-Resident Indian (NRI) | |
Income originating in India | Taxed | Taxed | Taxed |
Income considered to originate in India | Taxed | Taxed | Taxed |
Income received in India | Taxed | Taxed | Taxed |
Income considered to be received in India | Taxed | Taxed | Taxed |
Income from a business controlled from India or a profession set up in India but accruing outside India | Taxed | Taxed | Not taxed |
All other income (not related to India) | Taxed | Not taxed | Not taxed |
If you earn an annual income from India, you are required to pay income tax. The Income Tax Department divides income into 5 types:
Property Income: Tax on properties you rent out, not used for business.
Salary Income: Tax on money you earn as an employee or pensioner. Employers deduct TDS as per the Income Tax Act.
Business or Professional Income: Tax on profits from self-employment, freelancing, businesses, and professional services.
Capital Gain Income: Tax on profits from selling assets like property, bonds, stocks, or jewellery.
Income from Other Sources: Tax on income not covered before, like lottery winnings, dividends, rental income (except from houses), gifts, and interest from securities, debentures, and bonds.
As of the financial year 2023-2024 (Assessment Year 2024-25), here are the income tax slabs applicable for Non-Resident Indians (NRIs) in India:
Income Tax Slab | Income Tax Rate (in % p.a.) | |
Old Tax Regime | New Tax Regime (since April 1, 2023) | |
0 – Rs. 2.5 lakhs | NIL | NIL |
Rs. 2.5 lakhs – Rs. 3 lakhs | 5% | NIL |
Rs. 3 lakhs – Rs. 5 lakhs | 5% | 5% |
Rs. 5 lakhs – Rs. 6 lakhs | 10% | 5% |
Rs. 6 lakhs – Rs. 7.5 lakhs | 10% | 5% |
Rs. 7.5 lakhs – Rs. 9 lakhs | 15% | 10% |
Rs. 9 lakhs – Rs. 10 lakhs | 15% | 15% |
Rs. 10 lakhs – Rs. 12 lakhs | 20% | 15% |
Rs. 12 lakhs – Rs. 12.5 lakhs | 20% | 20% |
Rs. 12.5 lakhs – Rs. 15 lakhs | 30% | 20% |
Rs. 15 lakhs & above | 30% | 30% |
Income Range | Old Tax Regime 2022-23 | New Tax Regime 2023-24 |
Rs. 50 lakhs- Rs. 1 crore | 10% | 10% |
Rs. 1 crore- Rs. 2 crores | 15% | 15% |
Rs. 2 crores- Rs. 5 crores | 25% | 25% |
Rs. 5 crores- Rs. 10 crores | 37% | 25% |
Rs. 10 crores & above | 37% | 25% |
In India, Income Tax is collected in three main ways:
TDS (Tax Deducted at Source): Employers take a bit of tax from their employees' salaries and send it directly to the government.
TCS (Tax Collected at Source): Some businesses collect tax from their customers on certain transactions and send it to the government.
Voluntary Payment by Taxpayers: People can choose to pay their income tax directly to specified banks if they want to do it voluntarily.
Online tax payment in India is a quick and safe way for NRIs to handle their tax responsibilities.
The Income Tax Department offers easy options for filing Income Tax Returns (ITR), TDS Returns, and wealth tax returns, like:
E-filing 2.0
E-Pay Tax
TIN-NSDL
The online tax payment allows NRIs to remove the paperwork hassles by just logging in securely to the website. NRIs can use their Permanent Account Number (PAN), or Tax Deduction and Collection Number (TAN), and efficiently file their returns.
Filing your Income Tax Return (ITR) is like telling the government about your earnings and claiming any deductions. The form an NRI will use depends on their income and job type. Here is a list of the ITR forms that an NRI have to fill out:
ITR-1 (SAHAJ): For simple income like salary, interest, and house property.
ITR-2: For income from business, profession, capital gains, and other sources.
ITR-3: For income from business, profession, and capital gains.
ITR-4 (SUGAM): For individuals, HUFs, and firms with business, profession, and capital gains.
ITR-5: For LLPs, non-resident individuals, and foreign companies.
ITR-6: For individuals and HUFs with income from foreign sources.
ITR-7: For individuals and HUFs with income from international transactions.
If the employer of an NRI from an India-based company deducts more taxes than needed for the Financial Year 2023-2024, the NRI can claim a refund.
For Example, if your actual tax liability is Rs. 35,000, but Rs. 40,000 was deducted, you can get back the extra Rs. 5,000.
You can also claim a refund if you missed declaring your tax-saving investments, which has led to excess taxes being charged.
An NRI can estimate their income tax either by doing the math yourself or using an online tax calculator. The income tax calculator is a tool that helps estimate the amount you owe. This calculator considers the following factors to determine the tax liability of an NRI:
Your income
Income Tax bracket
Tax Deductions
Tax Credits (if applicable)
The calculator will determine your tax liabilities. You should use the results to plan your finances and ensure compliance with NRI tax regulations.
The tax saving investments are the financial tools that help lower your taxable income, offering deductions under the Income Tax Act.
Key tax-saving investment options include:
Tax Saving Investments | Details |
Unit Linked Insurance Plan (ULIP) |
|
Sukanya Samriddhi Yojana (SSY) |
|
Public Provident Fund (PPF) |
|
Employee Provident Fund (EPF) |
|
Senior Citizen Savings Scheme (SCSS) |
|
National Pension Scheme (NPS) |
|
Tax-Saver Fixed Deposit Scheme |
|
Equity-Linked Savings Scheme (ELSS) |
|
Life Insurance Policy |
|
Following are some of the tax deductions available to NRIs under the old tax regime. Only a few of them are available with the new tax regime.
Deduction on life insurance, provident fund, and superannuation payments.
Save up to Rs. 1.5 lakhs from taxable income.
Exemptions on payments to insurance companies and LIC for approved pension plans.
Limit: Rs. 1.5 lakhs from taxable income.
Tax exemption for contributions to the new pension scheme by the individual and employer.
Up to 10% of the individual's salary.
Deduction on health insurance premiums.
Save taxes up to Rs. 15,000 to Rs. 20,000.
Additional Rs. 5,000 for Hindu Undivided Family.
Tax deduction on medical expenses for specified diseases.
Applies to taxpayer, family, or HUF members.
Deduction on interest paid on education loans in India.
Tax benefit for first-time homebuyers.
Home value under Rs. 40 lakh, loan up to Rs. 25 lakh.
Deduction on income from royalties and patents.
Save income tax up to Rs. 3,00,000 for registered patents.
Deduction on interest earned in post office, co-operative society, and savings accounts.
Up to Rs. 10,000 for individuals and HUFs.
Deduction for disabled individuals.
Non-taxable up to Rs. 1,00,000 based on disability severity.
Interest on housing loan deduction.
Claim up to Rs. 2,00,000 per year in addition to other deductions.
For rented properties, eligible for tax savings on 30% of received rent and municipal taxes paid.
The income tax in India for NRIs has distinct considerations such as residential status, sources of income, and available exemptions. Staying informed about the changing tax laws in India can ensure NRIs fulfill their tax obligations efficiently while optimizing their financial strategies in accordance with Indian tax laws.
Income Tax Slab | Income Tax Rate (in % p.a.) | |
Old Tax Regime | New Tax Regime (since April 1, 2023) | |
0 – Rs. 2.5 lakhs | NIL | NIL |
Rs. 2.5 lakhs – Rs. 3 lakhs | 5% | NIL |
Rs. 3 lakhs – Rs. 5 lakhs | 5% | 5% |
Rs. 5 lakhs – Rs. 6 lakhs | 10% | 5% |
Rs. 6 lakhs – Rs. 7.5 lakhs | 10% | 5% |
Rs. 7.5 lakhs – Rs. 9 lakhs | 15% | 10% |
Rs. 9 lakhs – Rs. 10 lakhs | 15% | 15% |
Rs. 10 lakhs – Rs. 12 lakhs | 20% | 15% |
Rs. 12 lakhs – Rs. 12.5 lakhs | 20% | 20% |
Rs. 12.5 lakhs – Rs. 15 lakhs | 30% | 20% |
Rs. 15 lakhs & above | 30% | 30% |
Old Tax Regime:
Income Slab | Tax Rate |
Up to Rs. 2.5 lakhs | Nil |
Rs. 2.5 lakhs to Rs. 5 lakhs | 5% |
Rs. 5 lakhs to Rs. 10 lakhs | 20% |
Rs. 10 lakhs to Rs. 20 lakhs | 30% |
Above Rs. 20 lakhs | 35% |
New Tax Regime:
Income Slab | Tax Rate |
Up to Rs. 3 lakhs | Nil |
Rs. 3 lakhs to Rs. 6 lakhs | 5% |
Rs. 6 lakhs to Rs. 9 lakhs | 10% |
Rs. 9 lakhs to Rs. 12 lakhs | 15% |
Rs. 12 lakhs to Rs. 5 crores | 20% |
Above Rs. 5 crores | 30% |
Individuals and Hindu Undivided Families (HUF): Taxed based on income slabs, with two options: Old and New Regime (different rates and deductions).
Business Entities: Fixed tax rate on taxable profits (companies - 30%, others - 22%).
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
*All savings are provided by the insurer as per the IRDAI approved insurance plan.
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
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