Income Tax in India for NRI

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.

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What is Income Tax in India for NRI?

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.

Income Tax Act, 1961

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.

Old Vs New Tax Regime in India?

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.

Eligibility Criteria for Income Tax Payment

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

Types of Taxpayers in India Based on Residential Status

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

Different Types of Incomes for NRI under Income Tax

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.

Invest & Save upto ₹46,800 per annum in taxInvest & Save upto ₹46,800 per annum in tax

Income Tax Slab for NRIs in Financial Year 2023-2024 (AY 2024-25)

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%

Surcharge Rates for NRIs for Old Vs New Tax Regime FY 2023-24

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%

How is the Income Tax Collected in India?

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.

E-Tax Payment for NRI

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.

Income Tax Return (ITR) for NRI

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.

Income Tax Refund for NRIs in FY 2023-24

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.

Income Tax Calculator for NRI

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.

Income Tax Saving Investments for NRI

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)
  • Insurance and investment combo
  • Flexible investment funds
  • Tax advantages under Section 80C and 10(10D)
Sukanya Samriddhi Yojana (SSY)
  • Savings plan for girl child
  • Tax benefits under Section 80C
  • Enjoy EEE tax benefits on investment amount, interest earned, and maturity returns
Public Provident Fund (PPF)
  • Long-term savings with fixed interest
  • Tax deductions under Section 80C
  • EEE tax benefits on investment amount, interest earned, and maturity returns
Employee Provident Fund (EPF)
  • Mandatory retirement savings for employees
  • Tax deductions under Section 80C
  • Contributions from both employer and employee
Senior Citizen Savings Scheme (SCSS)
  • Ideal for seniors seeking regular income
  • Tax benefits under Section 80C
  • Quarterly interest payouts
National Pension Scheme (NPS)
  • Retirement savings with equity exposure
  • Tax benefits under Section 80CCD
  • Annuity options at maturity
Tax-Saver Fixed Deposit Scheme
  • Fixed deposit with a lock-in period
  • Tax deductions under Section 80C
  • Fixed interest rate
Equity-Linked Savings Scheme (ELSS)
  • Equity mutual fund with tax-saving benefits
  • Tax deductions under Section 80C
  • Market-linked returns
Life Insurance Policy
  • Provides life coverage and savings
  • Tax benefits under Section 80C and 10(10D)
  • Maturity and death benefits

Tax Deductions for NRI under the Income Tax Act, 1961

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.

  1. Section 80C:

    • Deduction on life insurance, provident fund, and superannuation payments.

    • Save up to Rs. 1.5 lakhs from taxable income.

  2. Section 80CCC:

    • Exemptions on payments to insurance companies and LIC for approved pension plans.

    • Limit: Rs. 1.5 lakhs from taxable income.

  3. Section 80CCD:

    • Tax exemption for contributions to the new pension scheme by the individual and employer.

    • Up to 10% of the individual's salary.

  4. Section 80D:

    • Deduction on health insurance premiums.

    • Save taxes up to Rs. 15,000 to Rs. 20,000.

    • Additional Rs. 5,000 for Hindu Undivided Family.

  5. Section 80DDB:

    • Tax deduction on medical expenses for specified diseases.

    • Applies to taxpayer, family, or HUF members.

  6. Section 80E:

    • Deduction on interest paid on education loans in India.

  7. Section 80EE:

    • Tax benefit for first-time homebuyers.

    • Home value under Rs. 40 lakh, loan up to Rs. 25 lakh.

  8. Section 80RRB:

    • Deduction on income from royalties and patents.

    • Save income tax up to Rs. 3,00,000 for registered patents.

  9. Section 80TTA:

    • Deduction on interest earned in post office, co-operative society, and savings accounts.

    • Up to Rs. 10,000 for individuals and HUFs.

  10. Section 80U:

    • Deduction for disabled individuals.

    • Non-taxable up to Rs. 1,00,000 based on disability severity.

  11. Section 24:

    • 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.

Summing It Up

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.

FAQ's

  • What is the income tax rate in India?

    As of today, January 12, 2024, the individual income tax rates in India for the financial year 2023-24 (assessment year 2024-25) are as follows:
    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%
  • How much income tax is charged in India?

    The amount of income tax you pay in India in FY 2023-24 depends on your chosen income tax regime:
    • 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%
  • How is income taxed in India?

    The way income is taxed in India depends on various factors:
    • 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%).

  • How many pay income tax in India?

    In FY 2022-23 (assessment year 2023-24), around 7.4 crore (74 million) people filed income tax returns in India.

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*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^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.
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