The Income Tax Act of 1961 defines an NRI or a Non Residential Indian on the basis of the number of days of an individual’s stay within India in a specific financial year. The residential status is usually determined separately for each year.
Employment includes self employment while India applies to the territorial waters of the country as well.
The income of an NRI incurred within India can most definitely be taxed if it exceeds the amount of 250000 INR per year. The global income of an NRI or earnings made on foreign soil is not taxed by the Indian government. How an NRI’s income taxes are filed will largely depend on his stay in the country in one particular financial year.
We make it possible for NRI’s who do not possess a PAN number to avoid a higher TDS in every financial year. To know more about this, a number of important points need to be kept in mind.
How is the Income of an NRI Taxed?
- Any income that is earned by an NRI from running a business enterprise in India is taxable by the Indian government.
- The income earned from fixed deposits as well as savings accounts that are held at Indian banks are taxable as well.
- Interest earned from FCNR and NRE accounts are entirely exempted from taxation. Interest that is earned from running an NRO account can be fully taxed.
- Gains from capital such as transfers of capital assets located in India can be taxed for NRI’s here in India.
- For residential property is sold by an NRI, then the buyer of the property will deduct TDS at about 20%,
- Some exemption from a capital gains tax payment may be achieved by re investing in another property or by investing in some capital gains bonds under Section 54EC and Section 54 of the Income Tax Act.
What are the TDS Rates Applicable for Non Residential Indian’s?
The tax liabilities for NRI’s who invest in India are usually the same as the liabilities faced by resident investors. However the tax payments of NRI’s are what is deducted at the source, known also as TDS.
The TDS which is deducted from most investments are deductions that are carried out at a flat rate of interest irrespective of the income slab which is not how it is done for residential Indians. The applicable taxes on financial gains are deducted during the time of maturity or redemption.
If the tax liabilities on investment are lower than the tax amount deducted at the source, NRI’s can file for income tax refunds from the income tax department in India.
TDS payment can be easily Avoided by Opening Specific Bank Accounts
- The best way for an NRI to avoid paying a high TDS is to open a Non Resident Ordinary Rupee Account (NRO), a Foreign Currency Non Resident Account (FCNR) and a Non Resident External Account (NRE).
- These are bank accounts that are regarded as completely tax free in India and there is no question of paying any tax for NRI’s who hold such accounts in India.
- We make it possible for our NRI customers to open such bank accounts in India in a quick and efficient manner.
- We take care of all the paperwork involved in opening these accounts and ensure that these accounts can be accessed and used by our NRI clients in a hassle free way.
- The NRO accounts that we open for our clients are opened as fixed or recurring deposit accounts or as current savings accounts.
- The interest that is earned by NRO account holders is however taxable with the TDS the NRI is subjected to being around 30%.
- Such is also the case for NRI’s for whom we open Post Office accounts in India.
- There are no basic exemption limits.
- The interest that resident Indians earn from their bank deposits is an amount that gets subjected to TDS that is only above the 10,000 INR limit.
- With Non Residential Indians no such limit can be applied.
Higher TDS payments can be prevented when NRI’s invest in Indian Mutual Funds
It is possible for NRI’s to save on TDS payments by investing in Indian mutual funds. We therefore strongly encourage our NRI clients to invest in leading Indian mutual funds so as to able to save on a huge TDS payment at the end of the financial year.
In order to be able to start investing in mutual funds in India, NRI’s need to open one of three accounts namely the NRO, FCNR and accounts. We help our customers to get such accounts opened in the most reputed of Indian banks so that the mutual funds investments undertaken are those that are carried out in a flexible and transparent manner. ‘
How can Mutual Funds Investment be Beneficial for NRIs?
Complete Exemption or Partial Payment of TDS
- Opening a mutual funds account here in India for a non residential Indian brings with it a number of long term benefits.
- By starting a mutual fund investment NRI’s will first and foremost be able to save a higher TDS that they would otherwise have had to shell out at the end of every financial year.
- By investing in mutual funds, especially if the amount is a large sum of money, NRI’s may be entirely exempted from TDS or may have to pay it at a rate which is much reduced.
- As a result, the savings they make from income earned on Indian soil will be far more than usual.
Long Term Gains in Capital
The mutual funds investments for NRI’s can also expose them to long term appreciation of money in India. There are many NRI’s who often choose to stay back and carry on earning income in India once they start investing in mutual funds and witness the huge returns in terms of capital that they are able to make while they are here.
Useful Investment Procedures to opt for like SIPs
Although NRI’s are able to invest a lot more money than most residential Indians, the minimum amount that they need to invest in mutual funds in India remains 5000 INR which is the same for locals. NRI’s are also allowed to opt for the Systematic Investment Plan or SIP when they start investing in mutual funds in India which really streamlines the investment procedure and makes it much more comfortable and flexible than it would otherwise have been.
Short Term Capital Gains from Mutual Funds Investments for NRI’s
|
Category of Units |
Tax Rates under the Act |
TDS Rates under the Act |
|
Units of Non Equity Oriented Scheme |
Taxable at Normal Rates of taxes applicable to assesse |
30% for Non Resident Individuals |
|
Units of a Scheme that is Equity Oriented |
Fifteen percent on recovery of parts where STT is to be paid on release (u/s 111A) |
15% |
Long Term Capital Gains from Mutual Funds Investments for NRI’s
|
Category of Units |
Tax Rates under the Act |
TDS Rates under the Act |
|
Listed Units of a Non Equity Oriented Scheme |
Ten percent without Indexation or twenty percent with indexation, whichever is lesser (u/s 112) |
Twenty percent for Non Resident Individuals (u/s 195) |
|
Unlisted Units of a Non Equity Oriented Scheme |
Ten percent with no indexation |
Ten percent for Non Resident Individuals (u/s 115 E/112) |
|
Units of a Scheme that is Equity Oriented |
Exempt in case of release of units where STT is to be paid on release (u/s 10 (38)) |
Exempt in case of release of units where STT is to be paid on release (u/s 10 (38)) |
How to Start Mutual Funds Investment Account for NRI’s?
- The process of starting a mutual fund’s investment with any Indian bank for an NRI is the same as what it is for a residential Indian.
- For our NRI clients we make this process as easy and comfortable as possible, by first submitting the application online on the website of a leading Indian mutual funds company.
- We take care of the entire paperwork involved and ensure that the investment application is approved within a week or two.
- NRI’s who invest in mutual funds in India can opt for a Systematic Investment Plan as well in order to give some structure and form to their investment.
- NRI’s may also investment in denominations as meagre as 500 INR and 1000 INR.
- As is the case with residential Indians, NRI’s may also stop their SIP’s if they are no longer interested in continuing with their investment and there are no penalties imposed in this regard.
- The returns that NRI’s incur for Indian mutual funds investments are the same as those of residential Indians, though they are usually able to make lump sum investments which the average residential Indian cannot.
Thus, there are quite a number of ways by which NRI’s without PAN can save on TDS or pay it at a far lower rate than usual.
