What is the definition of NRI under Indian tax law?
When an Indian citizen spends fewer than 183 days of a fiscal year in India, they are called NRIs, or Non-Resident Indians. NRIs need help investing in India because even though similar taxation laws apply to them, there is a discrepancy depending upon their type of investment.
Do NRIs need to file an ITR in India if they have no income earned in India?
By default, an income that an NRI earns abroad is exempted from tax in India. However, if the earnings in India via sources like mutual funds, term deposits, capital gains from the investment in shares, and property rental exceeding the fundamental limit as mentioned in the IT Act, 1961, an NRI will have to file an income tax return.
Taking the eligible taxation on the NRI’s income into consideration via sources in India, TDS is charged at the maximum rate on interest produced on the capital gains earned from term deposits, mutual funds and shares. Most often this cancels out the need to file a tax return. However, on the other hand, it might also occur that the overall TDS does not include the NRI’s basic tax liability. This makes the filing of returns the only method to file a claim for tax refunds.
What documents are required for NRI taxation in India?
Passport
PAN (Permanent Account Number)
Foreign income details and TDS certificates
Bank account statements
Investment statements (such as mutual funds, stocks etc)
Property ownership and rental income details
Form 26AS (Tax credit statements)
Tax residency certificate (TRC) from the country of residence
Double taxation avoidance agreement (DTAA) certificate, if applicable
How can a NRI file income tax in India?
Income tax act 1961 mandate that NRIs must pay taxes on income accrued in India or investments in India. For instance, one may have real estate investments in India (property owned or rented that generates income) or investments in the Indian share market. Such income is deemed taxable in India and NRIs have to file tax returns for to same. If you are an NRI, here’s how you can file your taxes:
Determine your Residential statement
Calculate the income accrued in India as well as your taxable income
Claim DTAA treaty benefits
File your returns
The income of a non-resident can be termed as an income accruing or arising in India in the following cases, as per Section 9 of the Income Tax Act: -
Income from a business running in India
Income from a property, asset or any other source of Income existing in India
Capital gains arising out of a transfer of a capital asset situated in India.
Income arising out of any services rendered in India, termed as salaried income.
Income arising out of any service rendered to the Government of India outside India, when the non-resident Indian was a citizen of India. Such a situation arises for those people who are officers deputed in Indian missions, consulates and embassies abroad.
Dividend paid by an Indian company
Interest, technical fees or royalty received from the Central or the State Government or any specified person.
What types of income are taxable for NRIs in India?
NRI’s investments in India in certain assets are taxed at the rate of 20 per cent but not all incomes of NRI are taxed at a flat rate of 20 per cent. As per Section 115c(b), a foreign exchange asset is one which would be any specific asset acquired, subscribed to or purchased by the assessee in convertible foreign exchange. It includes: -
Shares of Indian company
Debentures issued by an Indian Public Company
Deposits held with an Indian Public Company
Any assets prescribed by the Central Government
Assets specified by the Central Government in a notification in Official Gazette
These investments are entitled to separate and special treatment, as mentioned under Chapter XIIA of the Income Tax Act and no deductions under section 80 shall be allowed here while calculating investment income. Benefits of indexation can also not be availed by an NRI while making long term capital gains on transfer of foreign assets, however, he can claim profit as per Section 115F.
NRI’s Income Taxable in India:
Long term and short-term capital gains
Recurring gains on inheritance properties situated in India
NRI’s Income Exempted from Tax in India:
Income earned outside India.
Assets received in India by way of gift or inheritance.
Foreign currency investments are taxed at a lower rate.
Interest in deposits in NRE and FCNR accounts.
What is the tax deduction benefits available to NRIs in India?
NRI face strict taxation laws as against resident citizens. Fewer deductions are available to NRI which are as follows:
Deductions under section 80C
Life Insurance Premium Payment- It is deductible if premium is less than 10 per cent of the sum assured and the insured person is NRI himself, his spouse or his offspring
Investment in ULIPs- Investment in Unit Linked Insurance Plans of Life Insurance Company Mutual Fund or Union Trust of India are deductible
Deduction from House Property Income- Deduction of an amount up to Rs. 2,00,000 is allowed for interest paid on home loan of unoccupied house
Principal payment on Loan for purchase of House Property as mentioned already the payment of monthly installment for paying off loan taken for purchase of house property along with stamp duty and other registration charges are deductible.
Deduction under section 80D
Premium health insurance of dependents and immediate family of NRI allowed as deduction.
An amount up-to ₹5000 is allowed for deductions for preventive health check-ups.
Deductions for NRI’s under section 80E
Deductions of interest paid on education loan for higher education for the NRI himself, his spouse, his child or any other dependent student, subject to the earlier period of 8 years or till interest is paid, is allowed without any cap on the interest amount.
Deductions under section 80G
Deductions for donations made is available to NRI’s
Deductions under section 80TTA
A deduction up to 10,000 is available on the interest earned in the savings bank account.
Income Tax Return of an NRI
The income tax return is filed on the portal of the income tax department for every financial year, also termed as previous year, in the subsequent year, termed as the assessment year.
A non-resident Indian shall be required to file an income tax return in the following cases: -
Taxable income in India is more than the exemption limit
When the NRI wants to claim a refund of tax paid
If the NRI is facing a loss in any transaction related to an investment or asset in India and wants to carry it forward to the next financial year
When the NRI is incurring long term or short-term gain on sale of an investment
However, in the following cases, an NRI is not required to file an ITR: -
If the total income concerning a financial year only consists of investment income and tax deducted as source
If tax has already been deducted at source
If special investment income is the only income of an NRI in the relevant financial year and the TDS has been deducted pursuant to it
The last date to file an income tax return in India for a Non-Resident Indian is July 31st of the relevant assessment year.
How can NRIs avoid double taxation in India?
To curb issue of double taxation levied on NRIs, the double taxation avoidance agreement has been formed which has also signed by India. In this there are two methods provided to avoid double taxation and seek relief from income tax department:
Exemption method: In this method, the nonresident is taxed only in the one country, as per his wish and is exempted from taxation over the questioned income in the other country
Tax credit method: If income is simultaneously taxed in two jurisdictions, then tax relief can be claimed in the country of residence of the NRI.
NRI Taxation and Filing Requirements Guide