Income Tax for NRI: Are you an NRI? Do NRI have to pay Income Tax? If you have any of the doubts then you have reached the right place. Here, we will provide you detailed information about how to determine your residential status, Taxable Income for NRI, Deductions as well as Exemptions applicable on NRI and lastly How NRIs can avoid the double taxation.
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How to determine My Residental Status?
You will be considered the Resident of India for a Financial year if any of the below conditions are met.
– If you are in India for 6months (182 Days) in a particular financial year.
– If you are in India for 2 months of a year in the last year and also you have lived in India for a whole year (365 Days) in the last four years.
Here, if you are Citizen of India, working on a member of a crew on an Indian Ship, then only the first condition is valid for you. The first condition is also significant for all the People of Indian Origin, who are mainly on the visit of India. Here, the second condition is not valid for above-mentioned categories of people.
A PIO is mainly the person whose parents or the grandparents were born in the undivided India.
Is My Income Earned Abroad Taxable in India?
The income tax of NRI in India is mainly dependent on the resident status for that year.
Here, if your status is ‘resident’ then your global income will be taxable in India. While if your status is ‘NRI’, then only the income which is earned in India is taxable in India.
Examples of Income earned from India include salary gained in India or salary for service provided in India, Income obtained from in house property, income from capital gains and assets, income gained for fixed or savings account.
All the income earned from any of the above resources is taxable for NRI. Here, Income earned from outside India is not taxable in India. Also, if you have earned any Interest from NRE or FCNR Account, then it is tax-free. However, interest earned from NRO Account is taxable in India.
Am I required to File Income Tax Return in India?
Whether you are NRI or not, if your Income exceeds Rs 2,50,000. then you are required to file Income Tax Return in India.
All the NRI should file Income Tax in any of the below cases:
– If NRI wants to claim a refund.
– NRI’s have a loss that they want to carry forward.
Which is the last date to file Income Tax Return in India?
Every year, July 31st is the last day to file Income Tax Return of that particular year.
Do NRIs have to pay an Advance Tax?
If your tax liability exceeds Rs 10,000 in a specific financial year, then you need to pay Advance Tax. However, if you don’t pay Advance Tax, then interest under Section 234B and Section 234C will be taken into consideration.
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Taxable Income of an NRI
Your salary income is taxable only if you receive your salary in India or someone transfers money in front of your behalf.
Here, Income from salary will be taken into account if your services are being offered in India. This concludes that, even if you are an NRI, but if you are getting the salary based on the services offered by you in India, then that will be taxed in India.
Here, if you are an Employer in Government of India, and you are also the citizen of India, then if your services are being offered in India, then Income tax will be considered.
Income from house Property
If an NRI holds a house property in India, then it is taxable as per the law. Here, income tax can be calculated similarly as a resident. NRI can also give property on rent.
Here, NRI has also been granted to claim a standard deduction of 30%, by which you can deduct your property taxes and earn the benefit of an Interest deduction if there is a home loan. Apart from this, NRI is also provided principle deduction under the Section 80C.
Rental Payments to an NRI
An Indian Resident who pays rent to an NRI Owner should surely deduct TDS at 30%. The income will be transferred to the NRI’s Account in India or in the country where he/she is living.
Let’s consider an Example, suppose Saina pays a rent of Rs 40,000 to his NRI Landlord. Here, Saina should deduct Rs 12,000 before transferring rent to the NRI’s account. Also, Saina should fill the Form 15CA and submit Online to the Income Tax Department.
A Citizen who pays rent to the NRI has to compulsory submit the Form 15CA. One has to submit this form online. Also in several conditions, Form 15CB along with Form 15CA is required. In Form 15CB, various details are being verified by CA such as payment, TDS Rate, TDS deduction as per Sector 195 of IT Act, etc.
Form 15CB is not needed in the following cases:
– When rent doesn’t exceed Rs 50,000 in a single transaction and Rs 2,50,000 in the whole financial year. Here, Form 15CA will only be considered.
– When lower TDS is being deducted and a special certificate is obtained under the Section 197 or lower TDS is deducted only by the order of an Assessing Officer.
– None of the Form is to be filled if the transaction falls under the Section 37BB of IT Act.
Income from Other Sources
For NRI, interest gained from all the savings as well as the fixed account is taxable in India. While Interest gained from NRE and FCNR account is fully free. Also, the Interest gained from all the NRO Account is taxable in India.
Income from any Business and Profession
Here, Income gained by NRI from a business setup in India or any business is being controlled in India is taxable in India.
Income from Capital Gains
If NRI has capital gains from investments in India in various shares and securities, then it is taxable in India.
Also, if you sell in house property that has a long-term capital gain, then the buyer should deduct the TDS at 20%. Apart from this, you can also claim capital gains exception if you invest in the in house property as per the Section 54 or by investing in the Capital bonds as per the Section 54EC.
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The good news is:
Deductions and Exemptions for NRIs
Deductions under the Section 80C
Almost all the deductions are available for NRIs under the section 80C.
Deductions allowed to NRIs are:
- Life Insurance Premium Payment: The policy should be on the NRI’s name or spouse name or child’s name. Also, keep in mind that sum assured should be less than 10%.
- Children’s Tuition Fee Payment: All the tuition fee that is paid to any school, college or institution located in India for the overall education of both the children.
- Principal repayments on loan for the purchase of a house property: Here, a deduction is also considered for paying back the loan which was taken for constructing house property. Also, deductions are allowed for stamp duty, registration fees and for various other purposes in order to transfer such money to NRI.
- Unit-linked Insurance Plan (ULIPS): ULIPS is also sold along with the Life Insurance cover for deduction under the section 80C. All the Investments done in ELSS are deducted under Section 80C.
Read More: How to E-File ITR-1
Other Allowable Deductions
Deductions from House Property Income for NRIs
NRIs can claim all of the deductions that are provided to the resident for house property for a house purchased in India. Also, deductions for the property tax paid and the deductions for a home loan are also available.
Deductions under the Section 80D
NRIs are granted a deduction for the premium paid on health insurance. Here, Deductions is available for different categories such as Senior Citizen have a deduction of Rs 20,000 while self, spouse or the child has the deduction of Rs 15,000. Apart from this, NRI can also claim a deduction up to Rs 20,000 if parents are senior citizens and Rs 15,000 if parents are not a senior citizen.
Deductions under Section 80E
As per the Section 80E, NRI can claim the deduction of interest paid under the educational loan. The loan amount varies depending upon the higher education for a particular person. Here, the deduction is mainly offered for a period of 8 years or till you pay the interest, whichever is earlier.
Deductions under Section 80G
As per Section 80G, NRIs can claim the deduction for donations which are given to social causes.
Deductions under Section 80TTA
Under the section 80TTA, NRIs can claim a deduction on income from interest on savings bank account up to Rs 10,000.
Deductions not allowed to NRIs
Investments under the Section 80C:
– Investment in PPF is not granted
– Investment in NSCs
– Deposit Scheme in post office
– Senior Citizen saving scheme
Investments under RGESS
Deductions under the section 80CCG are available from 2014. The main aim of the deduction is to increase the participation of retail investors in equity funds.
Deduction for the Differently-Abled under the Section 80DD
Deductions under the section are mainly available for medical treatment of handicapped person so it is not available for NRI’s.
Deduction for the Differently-Abled under the Section 80DDB
Deduction is available for medical treatment a dependent who is disabled. This is only available to Indian residents.
Deduction for the Differently-Abled under the Section 80U
Deductions are available under this Section if the taxpayer himself suffers from disability for all the resident Indians.
Exception on Sale of property for NRI
One of the main things, long-term capital gains are being taxed at 20%. Also, keep in mind, long-term capital gains which are being earned by the NRI are subject to TDS of 20%.
Apart from this, NRIs can claim exceptions on long-term capital gains under the Section 54, Section 54EC and Section 54F.
Exceptions under Section 54 are mainly for long-term capital gains obtained from the sale of house property
Exceptions under Section 54F are mainly for all the assets other than house property.
Exceptions under Section 54EC are mainly for the sale of the 1st property which is being reinvested into specific bonds.
– If you don’t want to invest your profit gained from the first property into another one, here you can invest in bonds up to Rs 50 lakhs provided by the National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC).
– The landlord has only 6 months to invest in these bonds, however, he/she can claim the exception, you have to invest before tax filing deadline.
– The money which is being invested in bonds can be sold after 3 years. But it can’t be sold before a period of 3 years
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Here is the main thing:
How can NRIs avoid Double Taxation?
Double Taxation means that NRI is being taxed for the same income for both the countries.
In order to avoid this, NRIs can request a relief from DTAA from both the Countries.
Under DTAA, NRIs can claim relief by two methods.
1. Exemption Method: As per this method, NRIs have to pay tax in one country and exempted from another.
2. Tax Credit Method: As per this method, tax relief can be obtained in the country of residence.
We hope that you got all the Essential Information about Income Tax for NRI. If you like this article, then feel free to share with your family and friends.