PART I: Income Tax Basics
Determining residential status
The conditions to be called as an Indian resident are:
·Staying in India for at least 6 months or 182 days during a financial year
·Staying in India for 2 months/60 days in last financial year AND have stayed for whole year/365 days in last four years.
For Indian citizen working in abroad or a crew member of Indian Ship then the first condition will applicable to them.
Taxation and income from abroad
Residential status is the main cursor of Income Tax liability in India for an NRI. For a resident, their Global income is taxable in India. For NRI's, income earned within India is taxable income.
Examples of Income earned and are taxable income in India:
Salary received in India
Salary for service provided in India
Income from an Indian house property
Capital gains on transfer of Indian assets
Income from Fixed Deposits
Interest on savings bank account
Income that is earned outside India is not taxable income in India. If you earned interest on an NRE account and FCNR account is non-taxable in India. But interest earned on NRO account is taxable in India for an NRI.
Filing income tax return in India
Any NRI who earn more than INR 2,50,000 in a Financial Year is liable to e-file income tax return in India.
NRI's need to e-file income tax returns for the following reasons:
To claim a refund
To carry forward a loss
The only income earned from selling an asset in a financial year where TDS has been deducted are not required to e-file income tax return for that year.
PART II: Taxable Income for NRI's
1.Income from salary
Salary income is taxable when you receive it in India or someone does on your behalf.
Any NRI who receives a salary in their Indian account is liable to pay tax.
These incomes will be taxed at a rate of specified tax slab limits.
Income earned from services provided in India by an NRI is liable to be taxed in India.
If you are an Indian citizen and your employer is Government of India, then income earned abroad is also taxable in India.
2. House Property Income
Income generated from house property that is situated in India is taxable here.
Whether the property is vacant or rented out, it is liable to pay income tax on that. An NRI is also entitled to claim 30% standard deduction on house property against home loan interest payment.
Also, NRI's can claim a deduction against principal repayments under section 80C which includes Stamp duty, registration charges paid to purchase a property.
3.Rental payments to an NRI
If an NRI receives rental payment from a tenant, then the tenant must deduct TDS at a rate of 30%. Whether the rent is received in NRI’s Indian or foreign account, it is subjected to cut TDS.
4.Income from capital gains
Capital gain received on capital asset transfer based in India is tax liable in here and it also includes capital gains on share or security investments done in here.
If NRI's sell any house property in India, then buyers are entitled to deduct a TDS at 20%. NRI's are although eligible to claim capital gain exemption against house property investments which is described under Section 54.
5.Income from other sources
Interest earned from fixed deposits and savings account held with any Indian banks are taxable in India.
However, interest earned on NRE and FCNR accounts are non-taxable where interest earned on NRO account is 100% taxable.
6.Income from business and profession
Any business or profession set up controlled or set up in India falls under tax category and NRI's earning income through that are taxable in India.
PART III: Deductions not allowed to NRI's
Some Investments under Section 80C:
Investment in PPFs.
Investments in NSCs
5 Year Deposit Scheme held with Post Office
Senior Citizen Savings Scheme.
Investment under RGESS under section 80CCG
Deduction for the differently-abled under section 80DD
Deduction for the differently-abled under section 80DDB
Deduction for the differently-abled under section 80U.