Updated on: 5th August, 2023
If you are a Non-Resident Indian (NRI) and have taxable income from any source in India, the Income Tax Return (ITR) for NRI applies to you. You are considered an NRI if you have not lived in India for six months of the previous financial year if you were in India during the last financial year but for less than 60 days, or if you have lived in India for less than a year in the last four years.
Key takeaways
- The last date for filing income tax returns in India is typically July 31st of the assessment year.
- As an NRI, your income earned abroad is generally not taxable in India.
- NRIs can claim exemptions on long-term capital gains from the sale of residential property in India.
- You can enjoy tax deductions and exemptions on the following:
- Life insurance premiums
- Payments made towards educational institutions for children’s tuition
- Repayment of principal for home loans
- Premium paid towards health insurance on behalf of self, dependent children, spouse, and parents
Taxable Income for the NRIs
Different forms of taxable income accrued in India for NRIs:
- Salary for services provided in India
- Income from real estate
- Capital gain earned from selling assets in India
- Income from the savings bank account and fixed deposit
The other sources of income that are taxable in India for the NRIs include:
Income from Housing Property
If you are an NRI who has regular income from a property in India, the earnings are taxable in the same way in which it is for the Resident Indians. If you have a home loan, you can claim a tax deduction on the interest paid. Under Section 80C of the Indian Income Tax Act, 1961, you can claim tax exemption on principal, registration, and stamp duty-related charges.
Income from Capital Gain
When filing a Non-Resident Indian Income Tax Return, do not forget that any income from capital gain is taxable in India. The earnings made from the sale of any property in India, including shares and securities, are considered capital gain. In case of the sale of a property, the buyer has to subtract 20% Tax Deducted at Source (TDS) while making the payment if the property is sold two years after purchase. Any long-term capital gain made from equity-oriented investments is taxed at 10%.
Special Provision Related to Long-Term Capital Gains
Any long-term capital gain made from selling assets in foreign countries is also taxable in India. However, this income does not come with any tax benefits under Section 80 of the Income Tax Act 1961. You can reinvest the income in the following options to earn tax benefits under Section 115F of the Act:
- Shares of an Indian company
- Debentures of a public company in India
- Deposits with Indian public companies and banks
- Central government-issued securities
- National Savings Certificate (NSC) VI and VII issues
Tax Deductions and Exemptions for NRIs
You can enjoy tax deductions and exemptions on the following:
- Life insurance premiums
- Payments made towards educational institutions for children’s tuition
- Repayment of principal for home loans
- Premium paid towards health insurance on behalf of self, dependent children, spouse, and parents
- Repayment of educational loan taken for the higher education of self, spouse, children, and a legal heir
- Any donation made towards social causes
- Deduction up to ₹10,000 on the interest earned from the savings bank account
When you are filing for NRI taxation, remember these taxable incomes and deductions to avoid paying any additional amount.
How do I Determine My Residential Status?
Residential status is crucial in determining the tax liabilities of an individual. For NRIs, there are three residential status categories:
Resident
If you have stayed in India for at least 182 days or more during the financial year (April to March) or 60 days or more during the financial year, and 365 days or more during the preceding four financial years, you are considered a resident for tax purposes.
Non-Resident
If you do not meet the criteria mentioned above, you are classified as a non-resident for tax purposes.
Resident but Not Ordinarily Resident (RNOR)
This status applies to individuals who were non-residents in India in nine out of the ten previous financial years or stayed in India for a maximum of 729 days in the past seven financial years. RNORs have certain tax benefits and exemptions.
Is My Income Earned Abroad Taxable?
As an NRI, your income earned abroad is generally not taxable in India. However, any income earned or received in India, such as salary, rental income, or capital gains from Indian assets, is taxable in India.
Am I Required to File My Income Tax Return in India?
NRIs are required to file an income tax return in India if their taxable income in India exceeds the threshold limit. For the financial year 2022-23, the threshold limit for NRIs is ₹2.5 lakhs. It’s important to note that even if your income is below the threshold limit, you may still need to file an ITR if you want to claim a refund or if you have certain types of income that require reporting.
When is the Last Date to File an Income Tax Return in India?
The last date for filing income tax returns in India is typically July 31st of the assessment year. However, this date may vary, and it’s advisable to check the official website of the Income Tax Department of India for the most up-to-date information.
Do NRIs Have to Pay Advance Tax?
NRIs are liable to pay advance tax if their tax liability for the financial year exceeds ₹10,000. Advance tax payments are typically made in installments throughout the year. Failing to pay advance tax may attract interest and penalties.
Taxable Income for an NRI
NRIs are subject to tax on their income earned or received in India. The following are some key sources of income and their tax implications for NRIs:
Income from Salary
If you earn a salary in India, it is taxable in India. Your employer should deduct tax at source (TDS) and provide you with a Form 16, which reflects the tax deducted.
Income from House Property
Rental income from a property in India is taxable. NRIs can claim deductions on municipal taxes paid, standard deductions, and home loan interest under Section 24(b).
Rental Payments to an NRI
If you are an NRI receiving rental income from a tenant, they are required to deduct TDS at a rate of 30% (plus applicable surcharge and cess) before making the payment.
Income from Other Sources
Interest earned on savings accounts, fixed deposits, or any other income from Indian sources is taxable.
Income from Business and Profession
NRIs engaged in business or profession in India are taxed on the income derived from those activities.
Income from Capital Gains
NRIs are liable to pay tax on capital gains arising from the sale of assets in India, such as property, stocks, or mutual funds. The tax rate varies depending on the type of asset and the holding period.
Special Provisions Related to Investment Income
Certain investments qualify for special treatment in terms of taxation for NRIs. These include:
Special provision related to long-term capital gains
NRIs can invest the capital gains from the sale of property in specified bonds, such as the Rural Electrification Corporation (REC) or National Highways Authority of India (NHAI) bonds, to avail exemptions under Section 54EC.
Exemption on sale of property for an NRI
NRIs can claim exemptions on long-term capital gains from the sale of residential property in India by reinvesting the proceeds in another property within the specified timeframes under Section 54.
Ask a tax expert to help you with your IT returns
Navigating the complexities of Indian tax regulations can be challenging, especially for NRIs. It is advisable to seek the assistance of a qualified tax professional who specializes in NRI taxation. They can provide guidance, ensure compliance with the latest tax laws, and help optimize your tax liabilities and exemptions.
Deductions and Exemptions for NRIs
NRIs can also claim certain deductions and exemptions to reduce their taxable income. Some key deductions available to NRIs under 80C are:
NRIs can claim deductions up to ₹1.5 lakhs by investing in specified instruments, such as Public Provident Funds (PPF), National Savings Certificates (NSC), and Equity Linked Savings Schemes (ELSS).
Of the deductions under Section 80C, those allowed to NRIs are:
- PPF: NRIs cannot open a new PPF account but can continue the existing account until maturity.
- NSC: NRIs are not eligible to invest in NSC.
- ELSS: NRIs can invest in ELSS mutual funds and claim deductions.
- Other allowable deductions: NRIs can claim deductions on home loan interest, medical insurance premiums (under Section 80D), education loan interest (under Section 80E), donations made to eligible charitable organizations (under Section 80G), and savings account interest (under Section 80TTA), subject to specified conditions and limits.
- Deductions are not allowed for NRIs.
NRIs are not eligible for certain deductions, including those under Section 80U (for individuals with disabilities) and Section 80DD (for medical treatment of disabled dependents).
Exemption on sale of property for an NRI
NRIs can avail exemptions on long-term capital gains from the sale of residential property in India by reinvesting the proceeds in another property within the specified timeframes under Section 54.
Filing IT returns for NRIs in India involves understanding the nuances of the tax laws, identifying the applicable deductions and exemptions, and ensuring timely compliance. It is advisable to consult a tax expert who can provide personalized guidance and assist you in maximizing tax benefits while remaining compliant with the regulations.
Final Thoughts
Filing IT returns for NRIs in India involves understanding the nuances of the tax laws, identifying the applicable deductions and exemptions, and ensuring timely compliance. It is advisable to consult a tax expert who can provide personalized guidance and assist you in maximizing tax benefits while remaining compliant with the regulations.
FAQs
1
When are you considered a non-resident Indian (NRI)?
As per the Income Tax Act of India, an individual is considered a non-resident Indian (NRI) if they satisfy either of the following conditions:
If they have spent less than 182 days in India during the financial year (April 1 to March 31)
OR
If they have spent less than 60 days in India during the financial year and less than 365 days in India during the preceding four financial years.
2
I am an NRI. I have rental income from a flat that I own in India. I am employed in the US, and I receive salary income in the US. What income should I offer in India?
As an NRI, you are required to offer the following incomes for taxation in India:
Rental income from the flat you own in India is considered income earned in India and is taxable in India. Salary income received in the US is not taxable in India since you are a non-resident for tax purposes.
3
When should an NRI file his return of income in India?
An NRI should file their return of income in India if their total income exceeds the basic exemption limit, which is currently ₹2.5 lakhs for individuals below 60 years of age. However, it is advisable to file a return even if the income is below the exemption limit to comply with the tax laws and avoid any future complications.
4
I am an NRI aged 65 years. Do I have to file a return even if my gross total income is ₹2.8 lakhs during a year from India?
Yes, as an NRI aged 65 years, you are required to file a return of income in India if your gross total income exceeds the basic exemption limit, which is currently ₹2.5 lakhs for individuals below 60 years of age. The age-based exemption limit of ₹3 lakhs for senior citizens is applicable only to resident individuals, not NRIs.
5
Should taxes be deducted when payments are being made to NRIs?
Yes, taxes are generally required to be deducted at source when payments are being made to NRIs, subject to certain conditions. For specific types of income like interest, rent, royalties, etc., the person making the payment to the NRI is required to deduct tax at source and remit the net amount. The applicable tax rates and provisions can vary depending on the nature of income and the provisions of the Double Taxation Avoidance Agreement (DTAA) between India and the country of residence of the NRI.
6
Is an NRI taxable on the income he receives in India, in his country of residence? What is the role of the Double Taxation Avoidance Agreements (DTAA) here?
An NRI may be taxable on the income received in India in his country of residence, depending on the tax laws of that country. However, to avoid double taxation on the same income, India has entered into Double Taxation Avoidance Agreements (DTAA) with various countries. The DTAA provides relief to NRIs by allowing them to claim credit or exemption in their country of residence for taxes paid in India. The provisions of the DTAA help prevent double taxation and provide tax benefits to NRIs.
7
I am an NRI. Will I be subject to capital gains tax if I sell a flat that I own in India?
Yes, as an NRI, you will be subject to capital gains tax if you sell a flat or any other property that you own in India. The capital gains will be calculated based on the difference between the sale price and the cost of acquisition or the fair market value of the property as of 1st April 2001, whichever is higher. The tax rates and exemptions for capital gains can vary depending on the period of holding and the type of asset. It is advisable to consult a tax professional to determine the exact tax implications in your specific case.
