Non-Resident Indians (NRIs) are individuals who are Indian citizens or of Indian origin but reside outside India. Although NRIs are not taxed on their foreign income, they are subject to Indian income tax laws on income earned in India. Understanding these rules is crucial to avoid legal issues and optimize tax savings. This article explores the various facets of income tax obligations for NRIs, including income types, tax rates, exemptions, and filing procedures.
In the 2024 Budget, Sections 42 and 43 of the Black Money Act have been amended to eliminate the Rs. 10 lakh penalty for disclosure of movable assets, provided their aggregate value does not exceed Rs. 20 lakhs.
Your residential status plays a crucial role in determining your tax obligations in India. You are classified as a resident if you satisfy any of the following conditions:
Note: The 60-day rule does not apply to Indian citizens employed abroad or crew members on Indian ships, who only need to stay 182 days in India to be considered residents.
Individuals of Indian origin (PIOs) visiting India with total income (excluding foreign sources) of ₹15 lakh or less, are also exempt from the second condition.
If none of the above conditions apply, you will be classified as a Non-Resident Indian (NRI).
Resident but Not Ordinarily Resident (RNOR)
Individuals are classified as RNOR if they meet the following conditions:
The Finance Act 2020 introduced changes that now classify NRIs with a certain level of income and time spent in India as RNOR, which impacts their tax exemptions and deductions.
According to the Finance Act of 2020, Indian citizens earning more than ₹15 lakh from Indian sources will be considered as deemed residents of India if they are not liable to pay taxes in another country. These individuals will be classified as RNOR.
The government provided relief during the COVID-19 pandemic. For the financial year 2019-20, if NRIs were unable to leave India due to the lockdown, the period from March 22 to March 31 was not considered in determining their residential status.
The taxability of income for NRIs depends on their residential status:
Income earned outside India is not taxable in India for NRIs.
NRIs whose income exceeds ₹2.5 lakh must file an income tax return in India. This includes income from Indian sources like rental income, salary, and interest from Indian banks.
Srishti, an NRI living in the USA, has ₹20,000 TDS deducted from interest earned on her NRO account in India. Since her total income in India is below ₹2.5 lakh, she will not have to pay tax but must file an income tax return to claim a refund of the TDS.
NRIs are taxed on income earned or accrued in India, such as:
The tax rates for NRIs are similar to those for residents. Here are the income tax slabs for the financial year 2023-24:
NRIs whose income exceeds ₹2.5 lakh must file an income tax return in India. This includes income from Indian sources like rental income, salary, and interest from Indian banks.
Srishti, an NRI living in the USA, has ₹20,000 TDS deducted from interest earned on her NRO account in India. Since her total income in India is below ₹2.5 lakh, she will not have to pay tax but must file an income tax return to claim a refund of the TDS.
NRIs can claim exemptions on capital gains from the sale of property in India under Section 54, 54F, and 54EC. Exemption is available for long-term capital gains when the profit is reinvested in:
NRIs can avoid double taxation by utilizing the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence. Under DTAA, NRIs can either claim an exemption from taxes in one country or a tax credit in their country of residence for taxes paid in India.
An individual is considered a Non-Resident Indian (NRI) if they do not meet the criteria for residency, i.e., they are not in India for 182 days or more in the financial year, or for 60 days or more in the current financial year with a total stay of 365 days or more in the preceding four years.
Since you are an NRI, only the income that accrues to you in India will be taxable. You are not liable to pay tax on your global income. Accordingly, you must pay taxes in India on your rental income received from the flat situated in India. However, you are not liable to pay any taxes on your salary income that you receive from the USA.
An NRI, like any other individual taxpayer, must file their return of income in India if their gross total income received in India exceeds ₹2.5 lakh for any given financial year. The due date for filing a return for an NRI is typically July 31 of the assessment year, or as extended by the government.
The basic exemption of ₹3 lakh and ₹5 lakh is available only for resident senior citizens and resident super senior citizens in the old tax regime. Hence, as an NRI, even if you are a senior citizen, when your income in India exceeds ₹2.5 lakh, you will be liable to file your return of income in India.
Specified payments like rent, professional fees, or technical fees made to an NRI require tax deduction at source by the individual making the payment. The individual must obtain a TAN (Tax Deduction and Collection Account Number) to deduct taxes at source. Additionally, Form 15CA (to be filed by the person making the payment) and Form 15CB (to be obtained from a Chartered Accountant) are also required for making payments to non-residents.
If an NRI receives income in India, such income is taxable in India. India, as the source state, has the right to tax such income. However, the country where the NRI resides will also have the right to tax that income as it is the residence state. To avoid being taxed twice, NRIs can claim relief under the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence. This agreement allows NRIs to claim credit for taxes paid in India while filing their return in their country of residence.
Yes. You will be liable for capital gains tax in India upon the sale of your flat. Additionally, the purchaser must deduct TDS (Tax Deducted at Source) on the capital gains you make. For long-term capital gains, the TDS rate is 20%. If the gains are short-term, the TDS is deductible at applicable slab rates.
NRIs are required to pay tax in India on income earned or received in India, such as salary, rent, capital gains, interest from Indian bank accounts, and more. However, certain types of income, such as income from agriculture or specified investments like tax-free bonds, may be exempt from tax for NRIs.
No, NRIs cannot open new post office savings accounts in India. However, they can continue operating existing accounts, but these cannot be renewed after maturity.
Interest earned on NRE Fixed Deposits (FDs) is exempt from tax. However, interest earned on NRO Fixed Deposits is taxable.
NRIs can avoid double taxation (i.e., being taxed on the same income in both India and their country of residence) by seeking relief from the Double Taxation Avoidance Agreement (DTAA) between India and their country of residence. Under DTAA, there are two methods to claim tax relief:
No, NRIs are not eligible for the rebate under Section 87A under both the old and new tax regimes.
The last date for NRIs to file their returns is generally July 31st of the assessment year, unless extended by the government.
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