Many Indians spend a major part of their time abroad during the year. Now you must be wondering, are such people also required to pay taxes in India? Well, the answer depends on various conditions.
The Indian Income Tax Act of 1961 also applies to anyone generating income outside their own country besides residents. The income tax regulations and benefits available to them differ significantly from those available to resident Indians. This guide talks about the various provisions, rules, and regulations applicable to NRIs and their taxation.
Budget 2024
NRI definition as per Income Tax Act, a Non-resident Indian (NRI) is someone who isn’t physically present in India enough to be considered a resident for tax purposes. This is determined by an individual stay in India during a financial year (182 days or more makes him a resident) or over the past four years (60 days or more in a year and 365 days or more total). There’s an exception for Indian citizens who/PIOs abroad who are only residents if they stay in India for 182 days or more in a year.
So, as defined above, “a non-resident is a person who is not resident in India,” therefore, we need to understand who is considered a Resident in India.
You are considered a “Resident in India” for a financial year
There are certain exceptions to the above condition of 60 Days:
Then, the second condition of 60 Days and 365 days will not apply to you, which means that in the above situations, you will be considered resident in India if and only if you were present in India in the relevant financial year for a period of 182 days or more.
Therefore, you are a Non-Resident if you do not fulfill any of the above conditions.
Individuals are considered RNOR upon meeting the following conditions -
Any Indian citizen or PIO visiting India can be called an RNOR as per the conditions -
Yes, an NRI has to file an income tax return in India on income earned in India. NRIs have to pay tax on income that accrues or arises in India. NRIs also need to pay tax on income that is deemed to accrue or arise in India. Money received or deemed to be received in India is taxable. It's essential for NRIs to comply with tax regulations in India, and seeking assistance from tax experts can certainly simplify the process.
NRIs are taxed on specific incomes earned in India:
Tax2win tax expert can simplify the tax filing process for NRIs and ensure compliance with relevant regulations. Whether it's understanding your tax obligations, maximizing deductions, or resolving tax-related queries, professional assistance can be invaluable. You can connect with our tax experts via call/whatsapp at 9116684449.
India follows the “source rule” basis of taxation, i.e., all the income that accrues or arises from or through a source in India is taxable in India. Therefore, identifying the source of Income is of utmost importance.
If it is established that the income has its source in India, whether direct or indirect, such income would become taxable in India. A list of such incomes are:-
If the annual income exceeds the basic exemption limit of Rs. 2.5 lakh, it's mandatory to file tax returns, whether you're an NRI (Non-Resident Indian) or a resident. Typically, the deadline for filing returns is July 31 of the relevant assessment year.
Further, for the following income, NRI is taxed in India:-
Your NRI salary income will be taxed in India under two situations.
Situation A: If it is received in India- If you are an NRI and you have received any salary in India directly into an Indian Account or somebody else has received it on your behalf in India, then such salary income would become taxable in India.
Situation B: If it is earned in India- Your income is said to be earned in India if it is earned for services rendered in India. Therefore, if you are an NRI and your salary earned is for the services rendered in India, it shall be taxed in India.
You will be taxed at the slab rate to which your income belongs.
Any income from a property situated in India, either rented or lying vacant, is taxable income for an NRI.
It is important to note that even if the income is received directly into the non-resident's account outside India or in his NRE account, still the income would be liable to tax in India as the source of income, i.e., the property is situated in India.
Where a resident is required to pay rental to a Non-Resident Indian, a TDS at the rate of 30% is required to be deducted before transferring the money to the Non-resident’s account. A person making any payment to a non-resident is required to submit Form 15CA/15CB online to the Income tax department.
Indian-sourced income in the form of interest on fixed deposits and savings accounts that are held in Indian bank accounts is taxable in India. Interest received on NRE and FCNR accounts is tax-free, whereas interest received on NRO accounts is fully taxable.
Any capital gain arising on the transfer of capital assets situated in India shall be taxable in India. Capital Gains on investments in shares and securities shall also be taxable in India.
If you sell a capital asset, a house property, then
A. TDS of 20 percent is applicable on Long-term capital gains.
B. TDS of 30 percent is applicable on Short-term capital gains.
The buyer, even if he is an individual, is responsible for deducting tax at source and paying it to the Government. Since the onus of deducting tax on payments made to non-residents is on the buyer, he must get a Tax Deduction Account number (TAN) and issue a TDS certificate for the same.
Like residents, even Non-Resident Indians are allowed to claim exemptions under section 54, section 54EC, and section 54F on long-term capital gains from the sale of a house property. The long-term capital gain can be invested under:
Relevant proofs should be shown to the buyer so that no TDS is deducted by him.
In case, the buyer deducts TDS, the benefit of these exemptions can be availed at the time of return filing by NRI, and refunds of such TDS can be claimed.
No, in the case of non-resident income that accrues or arises outside India would not be taxable in India. Only income earned or received in India or income deemed to be earned in India is taxable for NRIs in India. This might include income from assets or investments in India, salary received for services rendered in India, income from a business set up in India, or capital gains on assets in India.
As an NRI you can avail of a special provision related to investment income. An NRI is taxed at 20% when he invests in certain assets in India. All the more, he/she is not required to file an income tax return if his/her income comprises only special investment income and TDS on the same has been deducted.
The income derived from the following assets in India acquired in foreign currency shall qualify for special treatment:
No deduction under Section 80 will be allowed while calculating investment income.
On long-term capital gain arising from the transfer or sale of these foreign assets, no benefit of indexation and deduction under Section 80 is allowed.
But you can still save your taxes by availing exemptions on the gains earned under Section 115F. Under this, you are required to reinvest the net consideration received into the following assets:
The entire capital gain would be exempt if the whole of the net consideration is re-invested. However, if the cost of the new asset is less than the consideration, then the capital gain will be exempt proportionately, i.e.
Total Capital Gain X Cost of New Asset ----------------------------- Total net consideration
NOTE: The exemption will be withdrawn if the new asset purchased is transferred or converted into money within a period of 3 years from the date of purchase.
The NRI can at any time withdraw from the special provision and in such a case the investment income and LTCG will be charged to tax under the usual provisions of the Income Tax Act.
Of the total deductions available to a resident individual, few are not available to non-resident individuals. A brief list of deductions available or not to Non-Residents is shown below:
The maximum deduction allowed under the section is Rs.1,50,000. The deductions allowed to NRIs under the section are -
NRIs can claim a deduction for premiums paid for health insurance for themselves and their family or parents in India.
The three possible situations and tax benefits for each are shown below:
| Policy taken for | Deduction Allowed | Total Tax Benefit |
|---|---|---|
| Self, spouse & children; Parents below 60 years | Rs.25,000 Rs.25,000 | Rs.50,000 |
| Self, spouse & children below 60; Parents above 60 | Rs.25,000 Rs.30,000 | Rs.55,000 |
| Self, spouse above 60 & children; Parents above 60 | Rs.30,000 Rs.30,000 | Rs.60,000 |
Section 80E allows NRIs to claim a deduction of interest paid on an education loan. This loan may have been taken for higher education for the NRI, or NRI's spouse or children or for a student for whom the NRI is a legal guardian. There is no limit on the amount which can be claimed as a deduction under this section. The deduction is available for a maximum of 8 years or till the interest is paid, whichever is earlier. No deduction is allowed on the principal repayment of the loan.
If eligible donations have been made as per section 80G of the income tax act, the deduction is allowed to NRIs.
Unlike residents for whose tax rates are classified on the basis of age, no such classification is available for Non-Residents.
Hence, for Non-Residents, whether aged
Below 60 Years
Above 60 - 80 Years, and
Above 80 Years
All are taxed uniformly.
The tax slab rates for Non-resident Individuals are:
| Old Tax Regime | New Tax Regime u/s 115BAC | ||
|---|---|---|---|
| Income Tax Slab | Income Tax Rate | Income Tax Slab | Income Tax Rate |
| Up to ₹ 2,50,000 | Nil | Up to ₹ 2,50,000 | Nil |
| ₹ 2,50,001 - ₹ 5,00,000 | 5% above ₹ 2,50,000 | ₹ 2,50,001 - ₹ 5,00,000 | 5% above ₹ 2,50,000 |
| ₹ 5,00,001 - ₹ 10,00,000 | ₹ 12,500 + 20% above ₹ 5,00,000 | ₹ 5,00,001 - ₹ 7,50,000 | ₹ 12,500 + 10% above ₹ 5,00,000 |
| Above ₹ 10,00,000 | ₹ 1,12,500 + 30% above ₹ 10,00,000 | ₹ 7,50,001 - ₹ 10,00,000 | ₹ 37,500 + 15% above ₹ 7,50,000 |
| ₹ 10,00,001 - ₹ 12,50,000 | ₹ 75,000 + 20% above ₹ 10,00,000 | ||
| ₹ 12,50,001 - ₹ 15,00,000 | ₹ 1,25,000 + 25% above ₹ 12,50,000 | ||
| Above ₹ 15,00,000 | ₹ 1,87,500 + 30% above ₹ 15,00,000 | ||
The rebate under section 87A of a maximum of Rs.12,500 is not allowed to a Non-resident.
Form 27Q is a statement that outlines the Tax Deducted at Source (TDS) on payments excluding salary made to Non-Resident Indians (NRIs) and foreigners. It must be submitted quarterly before the due date.
Buyers are required to deduct TDS when the sale value amounts to Rs 50 lakh or above. According to Section 194-IA of the income tax law, property buyers in India must withhold tax at source (TDS) if the property value exceeds Rs 50 lakh. However, TDS is not applicable on property transactions valued below Rs 50 lakh.
As a Non-resident, you still get the benefit of the basic exemption limit of Rs. 2,50,000 from your total income. However, if your total income in India consists of only short-term capital gains or long-term capital gains, then the benefit of the basic exemption limit is not available with respect to such gains.
Did you know?
Rebate (under Section 87A) is only available to residents.Non-resident taxpayers are not eligible for a rebate under 87A.
The unprecedented increase in cross-border movement of employees due to the globalized economy has provided Indian professionals with exciting opportunities for overseas assignments. However, it's crucial to consider certain tax aspects before accepting an overseas assignment.
An individual is considered to be a Resident of India if he/she is:
Let's understand with example, Ramesh, who is embarking on his first overseas assignment to the UK for a period of two years. Ramesh departs from India on 1st September 2008. Prior to this assignment, Ramesh has been residing in India and dutifully filing his Indian tax returns.
Given Ramesh's situation, if he has been physically present in India for less than 182 days during the tax year 2008-2009 (i.e., from 1st April 2008 to 31st March 2009), he should qualify as a non-resident in India. Consequently, only income received or deemed to be received in India and income sourced within India would be subject to taxation in India for Ramesh.
This means that the salary and allowances Ramesh receives during his overseas assignment in the UK would not be subject to Indian taxation unless they are directly received or sourced in India.
Resident individuals who recently moved to abroad will pay tax on income that is earned, received, or deemed to be received in India . This includes Income from salaries or wages, house property, capital gains on transfer of assets situated in India, business or profession controlled or set up in India or any other source in India. The tax rates applicable to these individuals who moved to abroad on income sourced in India are different from those applicable to residents. These individuals earning income in India generally need to file an income tax return if their total income in India exceeds the basic exemption limit. The due date and forms for filing the return may vary based on the nature and quantum of income.
An NRI's income taxes in India depend on their residential status for the year according to Indian income tax rules. If you are classified as a 'resident' in India, your global income will be taxable in India. However, if your status is that of an 'NRI,' only the income earned or accrued in India will be taxable in India.
Returning NRIs assume RNOR (Resident, Non-Ordinary Resident) status under specific conditions:
The Income Tax Department allows RNORs to retain certain exemptions available to NRIs for a period of 2 years after their return. This means that deposits held in foreign currency, which are exempt from tax for NRIs, remain exempt for returning NRIs during this 2-year transition period. However, after this transitional period ends, returning NRIs are treated as resident individuals for tax purposes.
This transitional period provides returning NRIs with some time to adjust to the tax regulations applicable to resident individuals, allowing for a smoother transition.
If you are a resident Indian with global income (earned or received outside), this income will be taxed in India.
"Till AY 2017-18 Non-Resident Individual (NRI) Assessee could file ITR 1 for their income earned or accrued in India. From the FY 2018-19 and 2019-20, amendments has been made in the eligibility to file form ITR 1. Now, ITR 1 can only be filed by Resident Individuals and is not available for non-ordinary residents.
This means a non-resident Individual (NRI) has the option to file either of these two ITR forms ITR 2 or ITR 3
ITR 2 can be filed in case the NRI has income other than income from Business and profession. Such other income can include income from rent received in India, interest income received, capital gains arising from share trading or sale of property located in India, etc.
ITR 3 is required to be filed in case NRI is receiving any income in India from Business or Professional activity being carried out in India.
The last date to file ITR for FY (2023-24) AY (2024-25) is 31st July 2024.
Filing Income Tax Return timely offers these benefits to NRIs:-
Under Section 139, for Non-Resident Individuals, the 31st of July of the assessment year is the due date for filing a return of income tax in India.
But if the NRI is a working partner of a firm whose accounts are required to be audited, then the due date becomes 30th September. To file IITR as an NRI, you can connect with tax2win here.
For non-resident Indian (NRI) citizens, it's important to file annual income tax returns in India if you have taxable income such as rental income, capital gains, or business income. File on time to avoid penalties. Report all Indian income and assets accurately to stay compliant with tax laws. If you remit money abroad, use Form 15CA and Form 15CB. Check Double Taxation Avoidance Agreements (DTAA) with your country of residence to avoid double taxation.
Yes. Even Non-Resident Indians come under the ambit of Advance tax. Advance tax is paid in the financial year/previous year on the basis of estimated tax liability for the year. If the tax liability is higher than Rs.10,000 then the assessee is required to pay his advance tax liability in four installments as mentioned in the Act.
In case of failure to pay advance tax on the specified due dates or on payment of less advance tax than the actual tax liability, interest under Section 234B & Section 234C is levied on the taxpayer.
The due dates and the amount payable of advance tax are:
| Due Date of Instalment | Amount Payable |
|---|---|
| On or before 15th June | Up to 15% of total advance tax |
| On or before 15th September | Up to 45% of total advance tax |
| On or before 15th December | Up to 75% of total advance tax |
| On or before 15th March | Up to 100% of total advance tax |
Want help with advance tax payment dues and filing, book online CA appointment.
The due date to file tax return for FY 2023-24 (AY 2024-25) is 31st July 2024, file your taxes here.
NRI taxation can be complex, especially when dealing with financial transactions and assets across borders. Here's a breakdown of the tax implications for common scenarios:
Tax-free: Remittances for personal use within the Liberalised Remittance Scheme (LRS) limit of USD 250,000 per year are tax-free.
TCS (Tax Collected at Source): Remittances exceeding INR 7 lakh per year attract a 5% TCS, which can be claimed as a credit against future tax liability.
Income tax: Remittances from business income, salary, or other taxable sources in India are subject to income tax based on the NRI's tax residency status and income slab.
Gifts from resident Indians (RIs) to NRIs: Tax-free unless exceeding INR 2 lakh (penalty applies).
Gifts from NRIs to RIs: Taxable for the receiver if exceeding INR 50,000 (added to total taxable income).
Gifts from NRIs to NRIs: Generally tax-free unless through illegal sources or exceeding USD 250,000 per year (LRS limit).
Inheritance of movable assets (e.g., shares, bank deposits): No inheritance tax in India.
Inheritance of immovable assets (e.g., property): No tax on inheritance itself, but capital gains tax may apply upon sale, subject to indexation benefits.
Remittance of inheritance proceeds: Limited to USD 1 million per financial year under LRS.
Income from foreign assets: Taxable in India if exceeding the basic exemption limit (currently INR 2.5 lakh for NRIs) and not exempt under DTAA provisions.
Capital gains from foreign assets: Generally taxable in India if accrued after becoming an NRI, unless exempt under DTAA provisions.
Reporting requirements: NRIs are required to disclose details of foreign assets in their Indian income tax returns.
Being an NRI (Non-Resident Indian) comes with specific tax filing requirements. Here's a step-by-step guide to help you navigate the process:
Step 1: Determine Your Residential Status
The first step is to confirm your residential status for tax purposes. You're considered an NRI if you spend less than 182 days in India during a financial year.
Step 2: Reconcile Income & Taxes with Form 26AS
Form 26AS is a crucial document that shows your tax deducted at source (TDS) on various income sources. Reconcile the information in Form 26AS with your actual income to ensure everything is accurate.
Step 3: Ascertain Taxable Income and Tax Liability
Calculate your total taxable income from all sources in India, including salary, rental income, capital gains, etc. Remember, some income might be exempt under tax treaties or specific categories.
Step 4: Claim Double Taxation Treaty Relief (DTAA)
If you have paid taxes abroad on income earned in India, you can claim relief under a Double Taxation Avoidance Agreement (DTAA) between India and your country of residence.
Step 5: Choose the Right ITR Form
NRIs typically cannot file ITR-1 anymore. Depending on your income sources, you might need to file ITR-2, ITR-3, or another applicable form.
Step 6: Gather Necessary Documents
Collect documents like Form 16 (salary income), rent receipts (rental income), capital gains statements, bank account details, and TDS certificates.
Step 7: File Your ITR Online
The Income Tax Department website (https://www.incometax.gov.in/iec/foportal/) allows online filing of ITRs. Use the relevant ITR form and upload the required documents.
Step 8: Verify Your ITR Filing
There are two ways to verify your ITR filing:
Additional Points to Remember
A Double Taxation Avoidance Agreement (DTAA) is a treaty signed between two countries to prevent residents of one country from being taxed twice on the same income earned in the other country. This is crucial for individuals like NRIs (Non-Resident Indians) who may work abroad and earn income in their country of residence while still maintaining ties to India. Without a DTAA, they could face the double whammy of paying taxes in both countries on the same income.
A Double Taxation Avoidance Agreement (DTAA) is a treaty between two countries aimed at preventing residents from being taxed twice on the same income. This is crucial for NRIs who work abroad but maintain ties to India. Without a DTAA, they could face double taxation on their income.
Here's how a DTAA benefits NRIs:
NRI tax filing can be daunting, especially if you're unfamiliar with the tax rules and procedures. To overcome these challenges, rely on a professional and reliable NRI tax filing service provider who can handle your taxation matters efficiently and effectively.
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