The income tax rules applicable to non-resident Indians (NRIs) differ significantly from those for resident Indians. The government taxes NRIs on income and capital gains they earn within India. NRIs must understand how taxation applies to them, which incomes are taxable, and the available exemptions and deductions. Here’s a complete guide on income tax for NRI, including tips for filing returns, taxable income categories, and deductions under various sections of the Income Tax Act.
Before understanding the taxation for NRIs, it’s essential to confirm whether you qualify as an NRI. Under Section 6 of the Income Tax Act, an individual’s residential status is based on their stay in India. You are considered an NRI if:
Once your NRI status is established, it determines the taxability of your income.
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NRIs are liable to pay taxes on any income earned or deemed to be earned in India. Below are the different categories of Income Tax for NRI:
Income earned by NRIs for services rendered in India is taxable. If an NRI receives a salary in their foreign bank account for services performed in India, that income is subject to taxation in India.
Income from house property in India is taxable for NRIs. The applicable deductions are:
NRIs are liable to pay taxes on capital gains arising from the sale of assets in India, including property, shares, or mutual funds. The capital gains can be:
Interest income from Non-Resident Ordinary (NRO) accounts is taxable at applicable rates. However, interest from Non-Resident External (NRE) accounts and Foreign Currency Non-Resident (FCNR) accounts are exempt from tax if the individual qualifies as an NRI for the financial year.
Any investment income in Indian assets is taxed at 20%. However, if the investment already has TDS deducted, filing a return is not mandatory. The investments include:
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NRIs are eligible for specific tax deductions under the Income Tax Act:
NRIs can claim deductions up to ₹1.5 lakh on:
Deduction on health insurance premiums paid for themselves and their families.
NRIs can claim a deduction on interest paid on an education loan.
Donations made to eligible charities are also deductible.
Deduction on interest income earned from savings accounts up to ₹10,000.
NRIs can claim tax benefits on income from house property, including deductions for property tax and interest on home loans.
NRIs cannot avail of tax deductions under certain government schemes, such as:
The Double Taxation Avoidance Agreement (DTAA) allows NRIs to avoid paying taxes twice on the same income in two countries. Depending on the country of residence, NRIs may receive relief through:
Confirm your NRI status using Section 6 of the Income Tax Act based on your stay in India.
Add up all your Indian-sourced income, including salary, house property, capital gains, and other taxable sources.
Claim all the applicable deductions under Sections 80C, 80D, etc., to reduce your taxable income.
File the income tax return online using the Income Tax Department’s e-filing portal. Make sure you verify the return within 120 days after submission.
If applicable, take advantage of DTAA provisions to avoid double taxation.
If you’re eligible for any tax refunds due to excess TDS deduction, file your return and claim the refund.
Understanding the taxation process for NRIs is essential to manage your financial obligations efficiently. NRIs must stay updated with their tax liabilities on income earned in India. By following the correct procedures and utilizing available deductions, NRIs can manage their tax filings without hassle.
NRIs enjoy the same basic exemption limit as resident Indians, i.e., ₹2.5 lakh for individuals below 60 years of age.
Yes, NRIs must file returns if their income in India exceeds ₹2.5 lakh in a financial year.
No, interest earned on NRE and FCNR accounts is tax-free for NRIs.
Yes, NRIs can claim deductions under Section 80C, except for investments like PPF, NSC, and Senior Citizen Savings Schemes.
DTAA, or Double Taxation Avoidance Agreement, is a tax treaty between two countries to ensure that NRIs are not taxed twice on the same income.
No, NRIs are taxed only on income earned or accrued in India. Global income is not subject to Indian tax unless the individual is a resident of India.
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