Understanding the Income Tax for NRIs in India

Taxes collected from the individuals by the central government are very important for the Indian economy. The government uses the money received in the form of taxes to improve infrastructure, provide public health care services, and develop rural areas.

Under the Indian Income Tax Act, 1961, Non-Resident Indian (NRI) taxation applies to those individuals that reside outside India but generate income in India through FDs, shares, property rentals, etc. The income tax rules and perks which are applicable in the case of NRIs are really different from the ones applicable to the resident Indians.

In this article, we will discuss the tax for NRIs.

How to Determine an Individual’s Residential Status?

There are two factors which can help to determine whether or not an individual qualifies as a resident of India in a particular FY (April - March), based on the Income Tax Act, 1961, and he has to file an ITR accordingly. These factors are mentioned below:

• The residential status which is based on period of stay in India under the Income Tax Act, 1961
• Income earned/accrued in India

There are two tax regimes that are operational in India, namely New Tax Regime and Old Tax Regime. The primary income threshold for taxation is reached when an individual’s income exceeds Rs. 2.5 lakh in the old tax regime or Rs. 3 lakhs in case of the new tax regime. 

If either of the two conditions are satisfied with respect to the individual’s period of stay, he will be considered a resident:

• If you stay in India for 182 days or more in a FY (April - March)
• If you stay in India for 60* days or more in a FY and 365 days or more in 4 years immediately before that FY

If you aren’t a resident as per any of the two conditions mentioned above, you can check if you’re eligible for deemed residency for taxation purposes. If you satisfy both the conditions mentioned below, you will be a deemed resident of India.

• If you aren’t liable for the payment of taxes in any other country due to specified reasons.
• If your income is sourced in India and is more than Rs. 15 lakhs in that FY.

According to the Income Tax Act, 1961, if you are neither a resident nor a deemed resident, you will be considered an NRI.

Taxable Income for Non-Resident Indians

As per the Foreign Exchange Management Act (FEMA), 1999 and the Income Tax Act, 1961, taxes can be paid by an NRI under the following conditions:

• Taxable income in India in a FY exceeds the exemption limit of Rs. 2.5 lakh.
• There is capital gain by selling any property in short-term or long-term.

Let’s discuss an NRI’s taxable income in detail:

• Salary: Any money earned in India or even received on an NRI’s behalf is eligible to be taxed. Simply put, an NRI has to pay tax on the wage earned for services rendered in India.
• Income Tax on Home Loan/House Property: Income earned from a house is eligible for taxation in India. Any capital gains generated by renting, selling or leasing an asset are liable to be taxed. A 30% discount can be claimed by an NRI for a house loan. According to Section 80C of the Income Tax Act, 1961, an NRI can also claim deduction for the principal amount, registration fees and stamp duty. A tenant who pays rent to an NRI owner must remember to deduct TDS at 30% at the time of paying rent and file Form 15CA.
• Third Source Incomes: Any interest earned on the savings bank accounts and FDs in India maintained by an NRI are subject to taxation.
• Investment: The capital gains and income in short-term and long-term from securities are taxed. Any gains on shares held in India by NRIs are also liable to be taxed. Taxation is also done for any capital gains on the transfer of an asset.
• Tax Break on Investment Income: An NRI gets taxed at a rate of 20% if he invests in assets available in India. However, if TDS has been deducted from the invested income, he is not required to submit returns. For the preferential treatment, the following investments are eligible:
  • Central government-issued securities
  • Shares in the Indian corporations
  • Debentures Deposits for the publicly listed companies

Income Tax Deductions

Conclusion

It is really important for the Non Resident Indians (NRIs) to understand the income tax slabs that apply in their case so that they can choose the right tax regime, stay compliant with the laws, and optimize their tax liabilities. NRIs must stay updated about the prevailing tax rates and exemptions which apply to their income sources in India. For assistance in filing your ITR, you can reach out to Registrationwala.

Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.