NRI Taxation Rules are Different for Exchange Control, Income Tax Laws

A person is considered to be an Indian resident for a financial year in case:

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  • If you have resided in India for at least six months or 182 days to be precise for a financial year.
  • If you have resided in India for 60 days (2 months) in the previous year and a whole year (365 days) in the last four years.

In case you are an Indian citizen who works abroad or a crew member of an Indian ship, then only the first condition applies to you, i.e., you are an Indian citizen if you lived in India for at least 182 days. This same condition applies to the person of Indian Origin (PIO) who is visiting the country while the second condition is not applicable to them.

PIO refers to the person whose parents or one of the grandparents were born in India before it was divided. If none of the condition applies to you, then you are an NRI.

Is There Any Taxation on the Income Earned Abroad?

The taxation applicable to the income earned by an NRI depends upon the residential status for the particular financial year. In case you are an NRI, the income earned in India is taxable.

Example of income earned in India is- salary received in the country or for the services provided in India, rents received from the house property in India, capital gains on transferring the assets, interests received on fixed deposits or interests received from the savings bank account. All these sources of income are taxable in India.

Income earned by the NRI outside the country is not taxable in India. Also, the interest which is earned on FCNR account and NRE account is also tax-free. However, the interests received on NRO account is taxable.

Does an NRI Need to File Income Tax Return in India?

Whether you are an NRI or not, anyone whose income exceeds the limit of Rs 2,50,000 has to file for income tax return in India.

Are NRIs Supposed to Pay Advance Tax?

In case your tax liabilities exceed the amount of Rs 10,000 then it is important for you for file advance tax. Interest is levied in case you don’t pay the advance tax. This is applicable under the Section 234B and Section 234C.

What is the Taxable Income of an NRI?

You are obliged to pay tax in case you have received a salary in India, or someone else receives it on your behalf. So if you are an NRI and have received your salary into an Indian bank account, then it is taxable as per the Indian Tax Laws. The tax is deducted based on the slab rate that you fall into.

Income from salary

Income from House Property

The calculation of the tax on the house is done in the same way as done for the resident. The NRI can avail a deduction of 30 percent, the property tax, and benefits if there is any home loan. A deduction is also allowed on repayment of the principal amount under the section 80C.

Rental payments received by NRI

In case an NRI receives rent from a tenant, then a TDS of 30% should be deducted.

Income from Other Sources

If you have any fixed deposits and savings account in the country, then the interests received on it is taxable. However, interests received on NRE and FCNR accounts are totally tax-free while the interest on NRO account is taxable. 

Income from Business and Profession

If the NRI holds a business which is based in India, then it is taxable. 

Income from Capital Gains

Any type of capital gains received is taxable in India. In case of selling a house property and receiving an LTCG, a 20% TDS should be deducted by the owner. However, as per the section 54, exemption on capital gains is allowed if you are investing in house property. This exemption is also applicable in case of investing in capital gain bonds (section 54EC). 

Special Investment Income

If an NRI has no other income except the special investment income with TDS duly deducted on it, then the NRI doesn’t have to file for an income tax return.

What Investments Qualify Under Special Category?

Income accrued on assets in the foreign currency:

  • Shares of a public or private company in India
  • Debentures of a public Indian enterprise
  • Amounts deposited in banks and Public Companies
  • Central Government securities
  • Other assets

No deductions are allowed on it.

What Type of Long-Term Capital Gains Come under Special Category?

An NRI can enjoy exemptions under the section 115F in case the profits received are reinvested in:

  • Shares of an Indian company
  • Debentures issued by a public Indian company
  • Deposits in Indian Public Companies and Banks
  • Central government securities
  • NSC VI and VII

An NRI has the option to opt out of the special provisions. In such cases, the income is charged for tax according to the rules of the Income Tax Act.

Are NRIs Allowed to Enjoy Deductions and Exemptions?

Yes, NRIs are also allowed avail deductions and exemptions on the income earned.

Section 80C

Under the section 80C, deductions are allowed for NRIs as well. A maximum amount of Rs 1.5 lakhs can be deducted from the total income. Deductions on payment of life insurance premium, tuition fee of children, payment of the principal amount of the loan of house property, ULIPs (Unit Linked Insurance Plan), ELSS are allowed under this section.

Other Deductions Allowed

The NRI is eligible for deductions as well other than under the section 80C.

  • Deduction on House Property- Deductions can be made for the house purchased in India. Home loan deduction and property tax are also allowed.
  • Under Section 80D- Deductions are allowed for the payment of premiums of health insurance up to a limit of Rs 50,000 for senior citizens, and Rs 25,000 in case of self, spouse and children.
  • Under Section 80E- Claim of deduction can be made on education loan. There is no such limit on the amount and deduction is available for a period of 8 years or till the interest is paid. However, it is not available for the payment of the principal amount.
  • Under Section 80G- In case you have made donations for the social cause, then deduction can be availed on it.
  • Under Section 80TTA- Deductions are allowed on deposits in savings bank up to a limit of Rs 10,000. 

How are NRIs taxed if

They are a resident for a temporary project

In case you have not been outside the country for more than 182 days, you will be considered an Indian citizen. But if you have resided outside for more than 182 days, then you will be taxed only for the income earned in India.

Resident moved abroad recently

Whether you are an NRI or not, if your income exceeds Rs 2, 50,000, you have to file tax returns. However, income earned or accrued in India is only taxed. 

Living abroad

If you have been living abroad and had in the case bought an insurance policy for your parents, then you are eligible for deductions. Also, you have to file for returns in case your income is more than Rs 2, 50,000

Recently Came Back to India

If you have recently come back to India, then you enjoy the status of RNOR in case-

  • You were NRI for 9/10 financial years previously.
  • Out of 7 financial years, you have lived here for 2 years or less.

In such cases, RNORs can enjoy exemptions for 2 years after the returns. In case you hold foreign currency in deposits, then it is eligible for an exemption for 2 years after coming back. After the end of 2 years, they will be treated as residents.

Having Global Income

If you are an Indian, then your global income is entitled to taxation. It may or may not have been earned outside, but it is taxable in India. You can avail the facility of DTAA in case it has been taxed in the other country as well.

How to Avoid Double Taxation?

Double taxation means getting taxed in both the countries- where you live and India. You can seek relief from this through DTAA. There are basically two methods for this- Tax Credit Method and Exemption Method.

In the exemption method, the NRI is taxed only in one country and spared in the other one. While in the other method, the NRI is taxed in both the countries and tax relief is availed in the country where you reside.

Conclusion- Tax filing procedure for NRIs may seem complicated but it isn’t the case. Hopefully, it has been made clear now how the taxation is done. You can refer to the above points for getting detailed information about it.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*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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