Income Tax for NRI: Taxable Income, Exemptions and Deduction

Written by : Knowledge Centre Team

2024-08-02

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The impact of income tax is on Indian citizens from all spheres of the economy. Income tax laws also cover those people who live in India but work for a Foreign Entity, as well as the Non-Resident Indians (NRI). The provisions of the income tax for NRI are comprehensive and explicit.

In this pandemic situation, many people have experienced work from home, where they were employed by foreign entities, while they were living in India. Since the foreign countries had closed their borders and were not allowing anyone in their country, many Non-Resident Indians worked for them while staying in India. This also included people who had Indian citizenship but had not visited India for several years.

Many such NRIs are unaware of Indian Taxation Laws. Hence, they are facing difficulties with regard to various aspects of income tax in India.

Here is the comprehensive and easy to understand guide on various aspects of income tax for NRI.

When do you Become an NRI?

You shall be considered as a Resident but Not-Ordinary Resident (RNOR) for the year if you meet the following conditions:

a) You have been non-resident in India for 9 years out of the previous 10 years preceding the financial year of consideration, or

b) You have stayed in India for 2 years (729 days) or less during 7 previous years preceding the financial year of consideration.

Additionally, in the Finance Act 2020 the residency provisions have been amended to include a person of Indian Origin, who visits India, subject to the following conditions:

a) Total income excluding foreign income is Rs.15 lakh or more,

b) The individual has stayed in India for more than 4 months (120 days) but less than 6 months (182 days) in the previous financial year,

c) The individual has stayed in India for at least 1 year (365 days) or more in four years before the previous financial year.

Computation of Total Income of Non-Residents

All the income which accrue or arises from or through a source in India is taxable in India.

1. Income from Salary

According to this rule, your salary income will be taxable in India under two scenarios:

a) If you have received salary in India :

If you are an NRI and you got any salary in India directly into your Indian bank account or someone else received it on your behalf in India, then such salary income shall be taxable in India.

b) If you earned salary in India :

Your salary is said to be earned in India if you have received it for your services rendered in India. Accordingly, if you are an NRI and you have earned a salary for the services that you rendered in India, it shall be taxable in India.

The income tax for NRI shall be as per the income tax slab. The NRI income tax slab rates shall be the same as that of the resident taxpayers.

2. Income from House Property

The Income from a house property that is located in India either let out (rented) or lying vacant shall be taxable for an NRI. The calculation of income from house property shall be taxed in the same manner as a resident taxpayer.

Just like a resident taxpayer, NRI can claim:

a) A standard deduction of 30%,
b) Municipal taxes as a deduction,
c) The benefit of interest deduction in case of a home loan, and
d) Principal repayment of the loan as deduction u/s 80C. Besides, you can also claim deduction on stamp duty and registration charges paid on the purchase of a new house property u/s 80C.

Note: Regardless of whether they receive the house property income directly into the non-residents account outside India or in their NRE account, still the income shall be taxable in India. This is because the source of this income i.e. the property is located inside India.

3. Income from Business and Profession

Any income that an NRI has earned from a business that he has set up and/or manages in India, shall be taxable to the NRI. The Income from Businesses and Profession shall be taxable as per the income tax slab. The NRI income tax slab rates are the same as that of the resident taxpayers.

4. Income from Other Sources

Any income earned by an NRI which is in the form of interest on the fixed deposits and saving bank accounts shall be taxable in India. However, if an NRI receives Interest on his NRE and FCNR account, that shall be tax-free. On the other hand, if they receives interest in their NRO account, that shall be fully taxable.

Also Read about - Income from other sources

5. Income from Capital Gains

All capital gains arising out of the transfer of capital assets located in India shall be taxable in India. Accordingly, the Capital Gains on the investments made in India in equity, or debt securities shall also be taxable in India.

However, if you sell a capital asset that is a house property, then the TDS shall be at the rate of:

20% applicable on Long-term capital gains.
30% applicable on Short-term capital gains.

Just like residents, the NRIs are also allowed to claim tax exemption u/s 54, 54EC and 54F on the LTCG from the sale of a house property.

Click here to use - Income Tax Calculator

Advance Tax for NRIs

If the tax liability of an NRI exceeds Rs 10,000 in the previous financial year, they are supposed to pay the advance tax. Besides, in case you fail to pay the advance tax within the due date, the interest u/s 234B and shall be applicable.

Investments that Qualify for Special Treatment

There is a tax-friendly provision wherein as an NRI you can get the benefit of special tax treatment with regard to specified investment incomes. As an NRI, your investment shall be taxable at the rate of 20% if you have invested in certain assets in India. Here are those assets where you can invest and get the benefit of this special tax treatment:

a) Shares in a public or private Indian company

b) Debentures issued by a publicly-listed Indian company (not private)

c) Deposits with banks and public companies

d) Any security of the central government

e) Other assets of the central government

When do NRIs not Required to File ITR?

Moreover, an NRI shall not be required to file an income tax return if their income consists of only the special investment income sources mentioned above, and the TDS on the same has also been already deducted.

Deductions for NRIs

Like the resident taxpayers, NRI can claim the deductions on the following incomes:

Investing in life insurance plans is one of the easiest ways of reducing your taxes in India. Canara HSBC Life Insurance offers the following plans that reduce your tax liability.

Applicable Section	Investments & Expenses	Deduction Limit(₹)
80 C, 80CCC, 80CCD(1)	An investment made in The premium of life insurance policy PPF, EPF, and superannuation funds Equity-linked saving scheme (ELSS) Sukanya Samriddhi Yojana (SSY) National Saving Certificate (NSC) Senior Citizen Savings Scheme (SCSS) Unit Linked Insurance Plan (ULIP) Tax saving Term Fixed Deposit for at least 5 years Infrastructural bonds (e.g., NABARD bonds) Post Office Deposits Premiums paid for life insurance pension plans contribution towards National Pension Scheme (NPS) The principal amount paid towards a home loan Stamp duty and registration charges for the purchase of house property Tuition fees Subscription to an IPO of a Public Limited Company	1.5 Lakhs NPS Contribution: - 20% of annual income (10% in case employer also contributes) - Rs. 1.5 lakhs
80CCD(1b)	Additional deduction on The contributions in NPS Contributions towards Atal Pension Yojana	50,000
80D	- Medical insurance premium for self, spouse and children below 25 years of age - Medical insurance premium for parents - Preventive healthcare expenses	- Below 60: Rs 25,000 - 60 & Above: Rs 50,000 (incl. Rs 5000 for preventive healthcare)
80DD	Medical expenditure of a Disabled Dependent Relative	If the disability is: - 40% to 80%: 75,000 - Above 80%: 1.25 lakhs
80U	Medical expenditure of a Disabled individual himself	Same as 80DD
80DDB	Medical Expenditure on you or your dependent relative	- If age is below 60: 40,000 - If age is above 60: 1 lakh

Investing in life insurance plans is one of the easiest ways of reducing your taxes in India. Canara HSBC Life Insurance offers the following plans that reduce your tax liability.

Whether you are an NRI or an ordinary resident, your financial needs remain the same. So, why not see to your financial safety needs while saving taxes all along.

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.

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