Income Tax for NRis – Everything to know about NRI taxation
Changing your status from a resident to a non-resident Indian can be very confusing at first, especially when it comes to filing your IT returns. As an NRI, even though you are residing in another country, you are still an Indian citizen and are expected to pay certain taxes in India.
Non-resident Indian is nothing but the status given to an Indian citizen if they reside outside India for a certain period of time. If you are a non-resident Indian this year, you could be a resident Indian the next year. Your residential status for that particular financial year (April – March) decides how and where you pay your taxes according to the Indian Income Tax Act, 1961.
If you are someone who moves in and out of India often, the following conditions can help you determine your residential status for the financial year.
- Determining Residential Status For Income Tax Purposes
- Taxable Income For a NRI In India
- Income Tax for NRIs on Income Earned From Owning Property
- Income Tax for NRIs on Income Earned From House Rent
- Income Tax on NRIs on Income Earned From Interest
- Income Tax for NRIs on Income Earned From Business
- Income Tax for NRIs on Income Earned From Special Investments
Determining Residential Status For Income Tax Purposes
For income tax purposes, you are considered to be a “resident” of India, ifYou are present in India for 182 days or more in the financial yearOr you are present in India for at least 365 days in the preceding 4 financial years and for at least 60 days in that financial year
If either one of these conditions is not satisfied, you would be considered a “non-resident” Indian for income tax purposes.
Please note that in cases where a resident Indian takes up a job outside India or is a crew member on an Indian ship, the 60 days minimum period mentioned above is increased to 182 days. The same applies to Persons of Indian Origin (PIOs) and Overseas Citizens of India (OCIs).
A crew member on an Indian ship is considered to be in India as long as the ship is on Indian territorial waters. The days outside India are counted only after crossing the coastal boundaries of India. Whereas if an Indian crew member is on a foreign ship, all the days are counted as being outside of India, even if the ship is trading in Indian waters.
So based on the above-mentioned conditions, if you qualify as a resident for the financial year, you will have to pay taxes on your global income in India. But if your residential status is declared as an NRI for the financial year, then you will not be taxed for the income earned outside India. Your taxable income will only be that which was earned or accrued in India.
To understand the kinds of income that usually arise in India for NRIs, read on.
Taxable Income For a NRI In India
As an NRI, if you receive a salary for the services you rendered in India, that salary is taxable in India. If you are to receive a salary from the Indian Government, the income is taxable even if the services were rendered outside India.
Only diplomats and ambassadors are exempt from tax.
Income Tax for NRIs on Income Earned From Owning Property
If you own a property in India, it is taxable for an NRI, whether it is vacant or rented out. If the house is not on rent, you still have to pay taxes based on the deemed annual value of your property.
The income from your property is considered to be the higher among the following values – “The expected rent value” (determined using the municipal value, fair rental value and the standard rent value) and “the actual rent received”.
Just like a resident Indian, NRIs can claim a 30% tax deduction and property tax deduction. If you have a home loan running, you can also claim the interest deduction. Furthermore, under Section 80C, NRIs can claim a deduction for principal repayment. It also allows you to claim stamp duty and registration charges paid while purchasing the property.
Read our article on: Property TDS payment for NRIs on property purchase
Income Tax for NRIs on Income Earned From House Rent
Apart from paying interest on the income generated from the annual rent as mentioned in the point above, if your house in India is rented out, your tenant will be required to deduct TDS at 30% before paying rent. The payment can be made to an NRO account or to your NRI account in your resident country.
After the TDS has been deducted, your tenant is required to provide you with the TDS certificate, which is essential for your income tax purposes. You can check the TDS details using Form 26AS.
Read our article on: Property TDS payment for NRIs on rental income
Income Tax on NRIs on Income Earned From Interest
NRIs are allowed to open NRE/NRO/FCNR rupee-denominated accounts in India. While the interest on NRE/FCNR accounts is tax-free, the income earned from the interest on the fixed deposits and savings accounts of the NRO account is taxable in India.
Tax paid is calculated based on the individual’s income tax slab. This is reported under “income from other sources” while filing income tax returns. You can claim deduction under section 80TTA up to INR 10000 on the interest.
Income Tax for NRIs on Income Earned From Business
As an NRI, if you earn any income from a business that is set up in India or controlled in India, that income is taxable in India.
Income Tax for NRIs on Income Earned From Special Investments
If an NRI invests in shares in a public or private company in India, or deposits in banks and public companies, or invests in debentures that are issued by a non-private publicly listed Indian company, or invests in any security of the central government, or in assets specified by the central government in the official gazette – these investments are considered to be qualified for special treatment.
When the only income of an NRI is that sourced from special investments in the financial year, then if the TDS has been deducted, you need not file an income tax return. The income that is eligible for special treatment is that which is received from investing in Indian assets using foreign currency.
We hope you now have a better understanding of the different kinds of taxable income that are commonly generated from Indian assets for NRIs. Feel free to leave comments if you have any questions for us or want to add on any more handy information on the subject.
If you wish to further know about the many tax deductions you can claim while filing the IT returns as an NRI, read about “Everything An NRI Needs To Know About Tax Deductions On Income From Indian Assets.”
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