Income Tax for NRI / Non-Resident Individual
Income Tax for NRI

Income Tax for NRI in India

We all know that taxes collected from citizens are the foundation of the Indian economy. NRI taxation under the Indian Income Tax Act, 1961 applies to those earning income outside the home country. The income tax rules and perks allowed to them are drastically different from those applicable to resident Indians.

Determine my residential status

You are considered an Indian resident for a financial year if you satisfy any of the conditions below:

>  When you are in India for 182 days or more during the financial year
>  You have been in India for 60 days or more in the previous year and have lived for 365 days 0r more in the last four years of the previous year.

Note: If you are an Indian citizen working abroad or a crew member on an Indian ship, only the first condition is available to you – which means you are a resident when you spend at least 182 days in India.

The same applies to a Person of Indian Origin (PIO) who visits India during the previous year and whose total income (excluding foreign sources) is less than or equal to 15 lakhs. The second condition does not apply to these individuals. A PIO is a person whose parents or any of his grandparents were born in undivided India. 

If you do not meet any of the above conditions, you are a Non-Resident Indian. 

Resident but Not-Ordinary Resident (RNOR) definition amended

Individuals will be considered as RNOR for the year if they meet the following conditions:

If you’ve been a non-resident in India for 9 years out of 10 years preceding the previous year or 

 If you’ve been a non-resident in India for 9 years out of 10 years preceding the previous year or
If you have stayed in India for 729 days or less during 7 years preceding the previous year.

Note: The Finance Act 2020 has amended the residency provisions to include Indian Citizen/Person of Indian Origin, who comes to visit India and shall now be considered as RNOR subject to the following conditions:

Total income other than foreign income is Rs 15 lakh or more
The individual has stayed in India for more than 120 days but less than 182 days in the previous year
The individual has stayed in India for 365 days or more in four years preceding the previous year
Before this amendment, such individuals were classified as non-residents. Due to the amendment mentioned above, the individual’s residential status may be classified as RNOR, which will lead to loss of DTAA benefits, increased scope of total income for taxability, loss of various exemptions allowed, etc.

It is to be further noted that in the above amendment, an individual staying for more than 182 days shall be classified as a resident irrespective of the level of income in the previous year. 

Deemed residency status introduced in Finance Act 2020

Finance Act 2020 introduced the concept of ‘Deemed residency’. According to this, Citizens of India earning more than Rs 15 lakh from Indian sources shall be deemed a resident of India if they are not liable for payment of taxes in any other country.

The deemed residents shall be classified as RNOR with effect from the financial year 2020-21. This amendment was brought into force to tax the incomes of Indian citizens who are not liable to pay tax in any country. 

Special relief due to COVID lockdown

For FY 2019-20, if individuals have come to India on a visit before 22nd March 2020 and they are:

Unable to leave India because of lockdown on or before 31st March 2020– the period of stay from 22nd to 31st March shall not be considered.

Quarantined due to COVID-19 on or after 1st March 2020 and departed on an evacuation flight on or before 31st March 2020, or unable to leave India- the period of stay from the beginning of quarantine to 31st March shall not be considered.

Departed on an evacuation flight on or before 31st March 2020– the period of stay from 22nd March 2020 to the date of departure shall not be considered.

Plan Your Taxes In Advance 

Is my income earned abroad taxable?

An NRI’s income taxes in India will depend upon his residential status for the year as per the income tax rules mentioned above.

If your status is ‘resident’, your global income is taxable in India. If your status is ‘NRI,’ your income earned or accrued in India is taxable in India.

Salary received in India or salary for service provided in India, income from a house property situated in India, capital gains on transfer of asset situated in India, income from fixed deposits or interest on a savings bank account are all examples of income earned or accrued in India. These incomes are taxable for an NRI.

Income which is earned outside India is not taxable in India.

Interest earned on an NRE account and FCNR account is tax-free. Interest on NRO accounts is taxable in the hands of an NRI.

Am I required to file my income tax return in India?

Any individual whose income exceeds Rs 2,50,000 is required to file an income tax return in India. 

Case Study:

When is the last date to file an income tax return in India?

July 31st is the last date for filing income tax returns in India for NRIs unless the government extends it. 

Do NRIs have to pay advance tax?

If NRIs tax liability exceeds Rs 10,000 in a financial year, they must pay advance tax. Interest under Section 234B and Section 234C is applicable if advance tax is not paid. 

Taxable income for an NRI

When you receive it in India, your salary income is taxable, or someone does it on your behalf. Therefore, if you are an NRI and receive your salary directly to an Indian account, it will be subject to Indian tax laws. This income is taxed at the slab rate you belong to. 

Income from salary

Income from salary will be considered to arise in India if your services are rendered in India.

So even though you may be an NRI, if your salary is paid towards services you provide in India, it shall be taxed in India immaterial of the place where you are receiving the income.

Suppose your employer is the Government of India and you are a citizen of India. In that case, if your service is rendered outside India, your income from salary shall be taxable in India.

Note that the income of Diplomats and Ambassadors are exempt from tax. For instance, Ajay was working in China on a project from an Indian company for 3 years. Ajay needed the salary in India to take care of his family’s needs and make payments towards a housing loan. However, since the salary received by Ajay in India would have been taxed as per Indian laws, Ajay decided to receive it in China. 

Income from house property

Income from a property that is situated in India is taxable in the hands of an NRI.

The calculation of such income shall be in the same manner as applicable to a resident. This property may be rented out or lying vacant. An NRI can claim a standard deduction of 30%, deduct property taxes, and benefit from an interest deduction from a home loan. The NRI is also allowed a deduction for principal repayment under Section 80C. Stamp duty and registration charges paid on purchasing a property can also be claimed under Section 80C.

Income from house property is taxed at slab rates as applicable.

For instance, Nandini owns a house property in Goa and has rented it out while she lives in Bangkok. She has set up the rent payments to be received directly in her bank account in Bangkok. Nandini’s income from this house which is located in India, shall be taxable in India. 

Rental payments to an NRI

A tenant who pays rent to an NRI owner must remember to deduct TDS at 30% while paying rent.

The income can be received to an account in India or the NRI’s account in the country they are currently residing in.

For instance, Maria pays a monthly rent of Rs 30,000 to her NRI landlord. She must deduct 30% TDS or Rs 9,000 before transferring the money to the landlord’s account. 
Maria must also get a Form 15CA prepared and submit it online to the income tax department. A person making a remittance (a payment) to a Non-Resident Indian has to submit Form 15CA. This form has to be submitted online. In some cases, a certificate from a chartered accountant in Form 15CB is required before uploading Form 15CA online. In Form 15CB, a CA certifies details of the payment, TDS rate, and TDS deduction as per Section 195 of the Income Tax Act, any DTAA (Double Tax Avoidance Agreement) applicable, and other details of nature and purpose of the remittance.

Form 15CB is not required when:

Remittance does not exceed Rs 5,00,000 (in total in a financial year). Only Form 15CA has to be submitted in this case.
If lower TDS has to be deducted and a certificate is received under Section 197, lower TDS has to be deducted by order of the AO.
Neither is required if the transaction falls under Rule 37BB of the Income Tax Act, listing 28 items. 

In all other cases, if there is a remittance outside India, the person asking for the remittance should take a CA’s certificate in Form 15CB. After receiving the certificate, submit Form 15CA to the government online. 

Income from other sources

Interest income from fixed deposits and savings accounts held in Indian bank accounts is taxable in India. Interest on NRE and FCNR accounts is tax-free. Interest on NRO accounts is fully taxable. 

Income from business and profession

Any income earned by an NRI from a business controlled or set up in India is taxable to the NRI. 

Income from capital gains 

Any capital gain on transfer of capital asset which is situated in India shall be taxable in India.

Capital gains on investments in Indian shares, securities shall also be taxable in India. If you sell a house property and have a long-term capital gain, the buyer shall deduct TDS at 20%. However, you can claim capital gains exemption by investing in a house property as per Section 54 or investing in capital gain bonds as per Section 54EC. 

Special provision related to investment income

When NRIs invest in certain Indian assets, they are taxed at 20% on the income earned. If the special investment income is the only income the NRI has during the financial year and TDS has been deducted, then such an NRI is not required to file an income tax return. 

What are the investments that qualify for special treatment?

Income derived from the following Indian assets acquired in foreign currency:

Shares in a public or private Indian company
Debentures issued by a publicly-listed Indian company (not private)
Deposits with banks and public companies
Any security of the Central Government
Other assets of the central government as specified for this purpose in the official gazette.
No deduction under Section 80 is allowed while calculating investment income. 

Special provision related to long-term capital gains

For long-term capital gains made from the sale or transfer of these foreign assets, there is no benefit of indexation and no deductions allowed under Section 80.

But you can avail an exemption on the profit under Section 115F when the profit is reinvested back into:

Shares of an Indian company
Debentures of an Indian public company
Deposits with banks and Indian public companies
Central Government securities
NSC VI and VII issues

In this case, capital gains are exempt proportionately if the cost of the new asset is less than the net consideration.

Remember, if the new asset purchased is transferred or sold within 3 years, then the profit exempted will be added to the income in the year of sale/transfer.

The above benefits may be available to NRI even when they become a resident – until such an asset is converted to money and upon submission of a declaration by the NRI to apply the special provisions to the assessing officer.

The NRI may choose to opt out of these special provisions, and in that case, the income (investment income and LTCG) will be charged to tax under the regular provisions of the Income Tax Act.

Income Tax for NRI / Non-Resident Individual
Maniraj Anantham 10 May, 2024
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