Everything You Need to Know About NRI Income Tax

Many Indians spend their major time overseas during the year. Now, you must be thinking do these people also need to pay Income Tax Return in India? Well, the answer to this question depends on several situations. It is because the Income Tax Act 1961 of India also applies to anyone earning income outside their own country besides living. Want to know more about this? If yes, this post is for you. Well, in this guide we will learn about NRI income tax and how this whole process takes place. So, browse down and know everything about it.

How to Know Your Residential Status?

If you satisfy any of the below-mentioned conditions you are considered an Indian resident for that financial year:

• When you are staying in India for 182 or more days during an accounting year.
• You have been in the country for 60 or more days in the last year. In addition, have stayed here for 365 or more days in the last four years including the last one.

However, for 60 days there are certain exceptions. These are as follows:

• If you are an Indian citizen and leave the country in the financial year as a crew member of an Indian ship. Another situation is you leave India for employment purposes.
• If you are an Indian citizen or a PIO who comes on a visit to the country.

Here, the second condition of 60 and 365 days will not apply to you. It means in the above cases you will be considered an Indian resident only when you were present in India in the relevant financial years for 182 days. However, if you fail to fulfill any of these conditions you will be a Non-Resident Indian in India.

Resident but Not Ordinarily Resident (RNOR)

Upon meeting the below-mentioned conditions individuals considered RNOR:

• Out of 10 years preceding the last year if you have been an NRI for 9 years in India.
• In the 7 years preceding the last year, you have lived in India for around 729 days or less.

With this, any citizen of India or PIO traveling to India can be called RNOR as per the following conditions:

• An applicant has stayed in the country for more than 120 but less than 182 days in the last year.
• An applicant has lived in the country for 365 days or more in the 4 preceding the last year.
• Apart from the foreign income if the total income of an individual is more than Rs. 15 Lakh.

It is how you can determine your resident status in India. Knowing about it assists you in fulfilling your duties towards the country. In addition, you must complete your responsibilities for your income tax return. Moving ahead, let's know the different categories for NRIs for paying NRI income tax in India.

Different Categories for NRI Taxation in India

If your annual income exceeds Rs. 2.5 Lakh, it becomes compulsory for an individual to file a tax return. In this situation, it does not matter whether you are an Indian resident or an NRI. Generally, the last date for filing the ITR for NRI is 31 July of the relevant financial year. Moreover, NRI income tax is applied for NRI for the following earnings:

Income from Salary

Under two conditions as an NRI, you need to pay an income tax return in India. These are as follows:

• First situation: If income is received in India. Being an NRI if you have received any salary into an Indian bank account in India rather than an NRO account or somebody else has received it on your behalf. In this situation, you have to pay income tax on your salary.
• Second situation: If it is earned in India: Your money is said to be earned in India if it is from rendered Indian services. Hence, if you are an NRI and you earn your income from Indian rendered services then, it is taxable in India.

In both situations, the taxable income for an NRI will be determined on the slab rate at which your earning belongs.

Income from House Property

Any income earned from an Indian property, whether it is vacant or rented comes in NRI taxation. In addition, the calculation of it is done in the same as applicable to an Indian resident. Further, let's know the applicable tax on it.

• A 30% standard tax deduction
• If there is a home loan take the benefits of deducted interest
• To deduct property taxes
• Under section 80C as a deduction to claim principal repayment of the loan. In addition, registration charges and stamp duty paid on the purchased property can also be claimed under this.

With this, it is vital to know that even if you get the income directly in your non-resident's account outside India or NRE account, still this income will taxable in India. It is because it comes under the category of the source of income i.e. the property is located in India. Apart from this, if an Indian resident pays rent to a NRI, 30% TDS is required to be deducted. It is done before transferring the money to the account of NRI. Also, an individual making payment to an NRI must first submit Form 15CA/ 15CB online on the Income Tax Department site.

Rental Payments

These are the following conditions under rental payments to an NRI:

• It is required for a tenant paying rent to an NRI to deduct 30% TDS during the payment. Here it does not matter whether the amount will be received to an NRI account or an Indian account.
• In addition, the TDS for NRI deductor needs to fill out form 15CA and submit it online on the site of the Income Tax Department.
• In some situations, the tenant needs to fill out form 15CB, a form certified by a CA. However, in cases where remittance is less than Rs 500000 Lakh in a year if the AO orders a less TDS deduction or if the transaction falls under the 37BB rule of the Income Tax Act, Form 15CB is not required.

Income from Capital Gains

On the transfer of capital assets located in India if any capital gain arises that income is taxable. Also, capital gains earned from securities and shares are taxable in India. In case you sell a house property or capital asset, then

• On long-term capital gains, 20% TDS will be applicable.
• On short-term capital gains, 30% TDS will be applicable.

The purchaser, even if he/she is an individual is accountable for deducting tax at source and paying it to the Indian government. Since the rule of deducting tax on payments made to NRI is on the purchaser, he/she must have a Tax Deduction Account number (TAN) and have a TDS certificate for the same.

With this, like an Indian resident, even NRIs have the permission to claim exemptions under different sections. For this, they can apply under section 54, section 54CE, and section 54F from the sale of house property on long-term capital gains. Under this, the long-term gain can be invested as follows:

This shows the relevant evidence to the buyer so that he/she does not deduct any TDS. In case the purchaser deducts the TDS, the benefit of the following exemptions can be availed during the return filling of NRI. In addition, refunds for these TDS on NRI can be claimed.

Income from Other Sources

If a business is set up or controlled in India, the income generated from it is taxable in India. In addition, income sourced from the country in the savings accounts and fixed deposits that are held in Indian bank accounts is also taxable. With this, interest received on the NRE account and FCNR account is free of all tax. However, interest received on the NRO account is completely taxable in India.

These are the different categories of NRI income tax under which NRIs pay tax in India. Moving ahead, let's learn about the challenges that residents and NRIs face during taxation.

Challenges for Residents Vs NRIs During Taxation

In comparison to Indian residents, NRIs face unique challenges during taxation. To provide you with information here is an analysis of the disparities, implications, and proposed reforms:

Long-Term Capital Gains (LTCG)

The following are the LTCG disparities, issues, and proposed reforms:

Dividend Income and Surcharges

The following are dividend income and surcharge disparities, issues, and proposed reforms:

Complicated TDS Rules for Property Sales

The following are TDS rules disparities, issues, and proposed reforms for property sales:

Payment of Taxes

The following are payment of tax disparities, issues, and proposed reforms:

Tax Returns E-Verification

The following are the tax returns E-verification disparities, issues, and proposed reforms:

Tax Benefits for Senior Citizens

The following are the tax benefits disparities, issues, and proposed reforms for senior citizens:

These are the several challenges NRIs face in comparison to residents during income tax returns. With this, moving ahead, let's know the special provision for NRIs for investment income.

Investment Income Special Provision for NRIs

Do you know an NRI is taxed at 20% when he/she invests in specific Indian assets? In addition, if their income comprises only income from special investments and at the same time TDS has been deducted, they are not required to pay income tax returns. With this, let's know the investments that are considered special.

Special Investment

The income generated from the following Indian assets acquired in foreign currency come in special investment:

• Indian companies share whether private or public firms.
• Debentures issued by a publicly listed Indian company (a private company did not come under this category).
• Any security of the Central Government.
• Deposits with public companies and banks.
• As mentioned under the official gazette any other assets from the Central government.

Special Provision Related to Long-term Capital Gains

Section 80 allowed no benefits of indexation and deduction for the long-term capital gain arising from the sale or transfer of these foreign assets. However, you can still save your taxes by applying under section 115F of exemptions on the earned gains. Under this, you need to reinvest the net amount into the following assets:

• Indian company shares
• Indian public company debentures
• Deposits with public companies and banks
• Securities of the Central Government
• NSC VI and VII issues

With this, if you re-invest the whole net consideration your entire capital gain would be exempt. However, if the new asset price is less than the consideration amount, then capital gain will be proportionately exempt. In addition, in case the newly purchased asset is converted or transferred into money within a time of 3 years from the purchase date the exemption is withdrawn. Also, an NRI at any time can withdraw from the special provision. In such a scenario, the LTCG and investment income under the general provision of the IT Act charged the tax. Moving ahead, let's know the income tax deduction for NRIs.

Income Tax Deduction for NRIs

Similar to Indian residents, NRIs have also the option to claim several deductions from their total income. Want to know what are they? Read below and get your answers.

Deductions Under Section 80C

Under Section 80C many of the deductions are also available for NRIs. For the financial year 2023-24, from the total gross income of an individual a maximum deduction of Rs. 1.5 Lakh is allowed. With this, the following are the deductions that NRIs can apply under this section:

Tuition Fees

NRIs can claim a deduction on tuition fees for full-time studies of their children. It applies to any school, college, or university located within India.

Equity Linked Tax Saving Scheme (ELSS)

In recent years ELSS has become the most preferred option. Under Section 80C it allows you to claim up to Rs. 1.5 lakh as it provides the EEE i.e. Exempt-Exempt-Exempt perks to taxpayers. In addition, it offers a good option to earn as these funds invest in the equity market primarily in a diversified manner.

Life Insurance Premium Payments

The following deduction is available if the policy has been bought in the name of NRI, his/her spouse, or children. Here the premium should be less than 10% of the assured sum.

Unit Linked Insurance Plan (ULIP)

For deduction under Section 80C, ULIP is sold with a life insurance cover. In addition, investments in this provide twin perks of insurance and making investments under the same integrated plan. The maturity period is 5 years. It includes deductions like premiums paid towards own, children, or spouse.

Principal Repayment of Home Loans

A deduction is applicable to pay the loan for constructing or buying residential house property. It is also allowed for registration fees, stamp duty, and other costs to transfer property to the NRI.

Deduction Under Section 80D

Under the following section, NRIs are allowed to claim a deduction for health insurance premiums. It can be for themselves, their parents, or their family in India. Here the the below table shows the three possible situations and tax perks for each:

Deduction Under Section 80E

Under section 80E NRIs can claim of interest-paid deduction on an education loan. This can be taken for higher studies for the NRI, his/her spouse, and children, or for a student of whom an NRI is a legal guardian. There is no amount limit for the deduction under this. In addition, the deduction is applicable for a maximum of 8 years or till the interest is paid (whichever is earlier). However, on the principal repayment of the loan, no deduction is allowed.

Deduction Under Section 80G

Under Section 80G NRIs can claim a deduction for donations done for social causes. However, the deduction is only made if it fulfills the criteria for eligible donations.

Deduction Under Section 80TTA

NRIs can claim a deduction of up to Rs 10000 like Indian residents on income from savings bank account interest. This applies to savings account deposits with a cooperative society, bank, or post office. In addition, is available from the financial year 2012-13.

These are the deductions available for NRIs under Income tax which they can apply for. With this, moving ahead, let's know the NRI tax slab 2024-25.

NRI Income Tax Slab 2024-2025

Unlike the Indian residents based on age, no classification is available for NRIs. Hence for NRIS, whether aged below 60 years, above 60-80 years, or above 80 years taxes are uniform. With this, the Income Tax Slab for NRI is as follows:

Tax Returns E-Verification

For New Tax Regime Revised Income Tax Slabs

These are the following revised income tax slabs for the new tax regime for NRIs:

• 0% (Nil)- Up to Rs. 300000
• 5%- Rs. 300000 to Rs. 600000
• 10%- Rs. 600000 to Rs. 900000
• 15%- Rs. 900000 to Rs. 1200000
• 20%- Rs. 1200000 to Rs. 1500000
• 30%- Above Rs. 1500000

Rates of Surcharges for NRIs

These are the following surcharges rates for NRIs:

• 10% surcharge rate for payable income tax on total income more than Rs. 50 lakh and up to Rs. 1 crore.
• 15% surcharge rate for payable income tax on total income more than Rs. 1 crore and up to Rs. 2 crore.
• 25% surcharge rate for payable income tax on total income more than Rs. 2 crore and up to Rs. 5 crore.
• 37% surcharge rate for payable income tax on total income more than Rs. 5 crore.

With this, the surcharge rate is for marginal relief. In addition, it is also applicable to the income of an NRI. It was all about the income tax slab rates for the year 2024-25. Moving ahead, let's know the income tax payment under different conditions.

Income Tax Return Under Different Conditions

Well, do you know there are different circumstances under which NRIs need to fill the income tax return in India? Want to know what are they? Read on the next section and get your answers:

Resident Individual on a Temporary Foreign Assignment

Due to the globalized economy, the unprecedented movement of employees cross-border has provided individuals with exciting overseas options. However, it is vital to consider several tax aspects before accepting an abroad assignment. As stated above a person is called an Indian resident if he/she is:

• If he/she is present in India for 182 or more days in the financial year.
• For 60 and 365 days or more physically present in India in that tax year or in the preceding four tax years. However, if a citizen of India leaves the country during the previous year for a job outside India. In addition, is a member of an Indian ship, and the 60-day period extended to 182 days.

If any of the conditions are not fulfilled by an individual he/she is considered as an NRI. It means that the allowances and salary they get during his/her overseas would not be subject to tax in India unless it is received in the country.

Resident Individual Recently Move Overseas

Individual residents who recently moved overseas will pay tax on the income they received, earned, and deemed to get in India. It includes income from house property, wages or salaries, assets transfer, or capital gains situated in India. In addition, the income tax rate of these individuals will be different from that of Indian residents. Generally, if applicants earning income in India have more than the basic exemption limit then they need to file ITR. Also, based on the quantum and nature of income the forms and due take for filling the return may vary.

NRI Living Abroad

An NRI income tax in India depends on their living status for the years as to the rules of Indian income tax. If a person is classified as an Indian resident, then the global income of he/she will be taxable in India. However, if he/she holds an NRI status then the income that they earned or accrued in India will be taxable in the country.

NRI Moved Back to India

Returning NRIs to India under specific conditions assumes RNOR. These are as follows:

• Staying Period in India: Upon the return of their NRIs, they should at least have lived in India for 2 or fewer years (729 days or less) in the last 7 accounting years.
• Duration of NRI Status: They should be an NRI for 9 out of 10 accounting years preceding the year of their coming to India.

In addition, the IT department allows RNORs to apply for certain exemptions applicable to NRIs for 2 years after their return. This states that income held in foreign currency, which is exempt from NRI tax, remains exempt for 2 years. However, after the completion of this period, these individuals for tax purposes as resident individuals. The following period allows the NRIs to adjust to the tax regulations, allowing for an easy transition.

With this, if you are an Indian resident with international income, the income you received or earned outside is taxable in India. These are different income tax return conditions according to which NRIs need to fulfill their tax responsibility. Furthermore, now, let's know the ITR forms available for NRIs.

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ITR Form for NRIs

Till the accounting year 2017-18, NRI Assesses were allowed to file ITR 1 for their income accrued or earned in India. However, from 2018-19 and 2019-20 financial years rules have been made regarding the eligibility to file ITR 1 form. Now, only Indian residents can file the ITR 1 form and it is not available for NRIs. It means them, there are two options for filing the income tax return in India. These are two ITR forms i.e. ITR 2 and ITR 3.

• ITR 2: In case the NRI earned income from other than a profession or business can fill out this form. These incomes include capital gains arising from the sale of property, share trading, rent received, interest received in India, and more.
• ITR 3: An NRI can file the ITR 3 form in case he/she earned in India from a professional activity or business that is carried out outside the country.

These are the following ITR forms available for NRIs to file the income tax return in India. Moving ahead, let's know the documents required for this process.

Documents Required for NRI Income Tax Return

These are the following documents NRIs need to fill out the income tax return in India:

• Passport (for verification of citizenship)
• PAN Card
• Bank Account Details
• Investment Statements
• Form 16 (if employed in India)
• Foreign Income Details
• Rent Receipts (if the property is renting out)
• Property Documents (if owned in India)

Apart from the mentioned documents, it is advisable to cross-check the list before filling out the ITR in India. With this, moving ahead, let's know the NRI income tax rules.

Income Tax Rules for NRIs: Gifts, Remittance, Inheritance, and Foreign Assets

Indian taxation can be difficult for NRIs especially when dealing with financial assets and transactions across borders. To give you an idea, here is a breakdown of the common scenarios for tax implications.

These are the following income tax rules for NRIs that they need to take care of while receiving any gift, remittance, foreign assets, or inheritance in India. Moving ahead, let's know the step-by-step process of filling out the NRI income tax.

NRI Income Tax: Step-by-Step Process for Tax Returns

Being a non-resident Indian comes with specific requirements for tax filing. To guide you, here is a step-by-step process to navigate the process:

• Know Your Residential Status: The first step before filling the ITR is to know your living status. If you spend less than 182 days in India during a financial year only then you are considered an NRI.
• Reconcile Taxes and Income with Form 26AS: On various income sources form 26AS is a vital document. It shows your Tax Deducted at Source (TDS). Reconcile the details in the form 26AS with your real income to certify everything is accurate.
• Ascertain Tax Liability and Taxable Income: Calculate your total income from different sources in India. It includes all your salary, capital gains, rental income, and more. With this, know that some income under tax treaties or specific categories may be exempt.
• Claim Double Taxation Treaty Relief (DTAA): If you already paid taxes on the income you earned in India, you can claim it under the DTAA provision. However, before applying for it make sure that the other country is within the agreement or not.
• Select the Correct ITR Form: As stated above NRIs are not allowed to file the ITR 1 form. So, depending on your sources of income file the correct form from ITR 2 or ITR 3, or another applicable form.
• Collect Vital Documents: Collect the above-mentioned documents listed in the blog while filling out the ITR form.
• File Your ITR Online: Through the online IT Department website you can file the ITR online.
• Verify Your ITR Filling: There are two ways by which you can do so. First, check it electronically by using your digitally signed verification or Aadhaar card. Second, physically sending a signed copy of the form to the IT department.

By using these steps you can fill an ITR in India. Also, remember to declare any exempt income like dividends on shares in the designated ITR section. In addition, do not forget to mention the details of your bank accounts in foreign if you are claiming any tax refund. With this, moving ahead, let's know about DTAA provision for NRIs in detail.

What Is a Double Taxation Avoidance Agreement for NRIs?

DTAA also known as Double Taxation Avoidance Agreement is an agreement signed between two nations. It prevents residents of one nation from paying the tax on the same earned income in the other country. It is vital for people like NRIs who work overseas and earn in their nation of residence while maintaining their ties with India. Without this, agreement they may face paying double taxes on the same earned income. With this, here is how it benefits the NRIs:

• Tax Relief: The provision specifies which nation has primary rights of tax on several income types. For example, income from a job is primarily taxed where the work is done. However, interest and dividends may be taxed in the residence country. It reduces the tax burden of NRIs and saves them from being taxed twice.
• Promotion of Trade and Investment: By mitigating double taxation, the DTAA provision encourages cross-border trade and investment. In simple words, it boosts jobs and business options for NRIs.
• Certainty and Clarity: DTAA offers clear rules for taxed incomes. In addition, decreases potential disputes and uncertainty with tax officials. Also, it assists NRIs in complying with the tax laws of both nations.
• Enhanced Tax Cooperation: The following provision often involves sharing tax-related details between two nations. It aids in certifying fair compliance with tax and fight against tax evasion.

Conclusion

Filing an ITR in India as an NRI can be daunting specifically when you are not familiar with tax procedures and rules. Here in this blog, we have provided all the information related to NRI income tax. With this, if you are seeking guidance for NRI-related services in India or overseas contact Visament. The experts here have good experience in all these. In addition, they can assist you with any services related to your visa, passport, or more. Connect with us today and get the best assistance for sure.