NRI Taxation

NRI Taxation

Complying with tax laws has always been a tricky affair. Tax laws tend to eat into a significant portion of the income, if not handled with caution and care. As such, it becomes imperative for you to know how the tax laws recognize your NRI status and what difference does it make for your tax compliances. This article aims at helping you understand the NRI taxation in India.

Who is a Non-Resident Indian?

The Income Tax Act does not expressly define as non-resident but instead defines a resident. As per the Income-tax Act, an individual is a resident of India if he/ she has stayed in India for at least 182 days during the financial year, or has stayed in India for 60 days or more during the relevant financial year and 365 days or more during the preceding four years.

As such, an individual not fulfilling the prescribed stay period in India is considered as a non-resident.

Income Tax for NRI in India

If an individual is considered as a resident as per Income Tax Rules, the global incomes can also be taxed in India. However, for a non-resident, only the following incomes can be taxed:

1. Income accrued or deemed to be accrued in India
2. Income received or deemed to be received in India

An illustrative list of such taxable incomes for NRIs in India is given below:

1. Income received in India for services provided across the Globe
2. Income for services provided in India
3. Gains on sale of assets located in India
4. Rental income from property situated in Indian territory
5. Interest income from Fixed Deposits in Indian branch

NRI Income Tax Rules for Bank Accounts

NRIs are eligible to open NRE (Non-Resident External)/ NRO (Non-Resident Ordinary) Savings Accounts and Fixed Deposits which are denominated in Indian currency. Further, NRIs can also open FCNR (B) deposits, denominated in specified foreign currencies. The interest earned by NRIs on NRE accounts and FCNR (B) deposits are exempt from tax as per the Income Tax laws, whereas the interest earned on NRO accounts is subject to tax as well as the provisions of Tax Deduction of Source (TDS).

Tax deductions available for NRIs

NRIs can avail the tax deductions under Section 80C and Section 80D. Section 80C allows the taxpayers to avail tax deduction up to Rs. 1.5 lakhs against permissible payments/ investments, e.g. payment of life insurance premium, principal repayment of home loan, investment in Equity Linked Savings Schemes (ELSS), etc.  Similarly, NRIs can also claim a deduction on premium paid towards health insurance or payments towards preventive health check-up under Section 80D of the Income Tax Act, 1961. The deduction towards insurance premium is available up to a maximum of Rs. 25,000 self, spouse and dependent children and further, an additional deduction up to Rs. 25,000 for premium paid towards health insurance policies of parents, extended to Rs. 50,000 if the parents are aged 60 years or more. The deduction in respect of preventive health check-up is restricted to Rs. 5,000.

Avoid double taxation

The instances of double taxation may occur if one is subject to income tax on the same income in more than one country. For example, fees received directly in an Indian bank account for services rendered in  U.S will be subject to tax in U.S as well as in India. To avoid such instances of double taxation, Indian tax laws allow the taxpayers to claim income tax relief towards the tax paid in the foreign country to the extent of the tax payable on such income in India.

Disclosures in Income Tax Returns

The financial year runs from April to March in India. For the financial year 2018-19, the NRIs are eligible to file ITR-2/ ITR 3 as per their respective source of income In India. If the NRI has income from profits and gains from business and profession, he/ she can file ITR-3, else for all other sources of income, ITR-2 will be applicable. Further, Non-residents also need to furnish the total stay in India in terms of number of days in the ITR.

The information provided in this article is for informational purposes only. You may consider consulting tax professionals for specific guidance for the applicable Income Tax rules for you, as tax benefits are subject to changes due to changes in tax laws.

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