A BRIEF GUIDE ON INCOME TAX FOR NRIs
As everyone knows, the basis of the Indian economy is the taxes that are collected from its residents. For individuals who generate money outside of their nation of residence, the Indian Money Tax Act, of 1961 applies to them. Their income tax benefits and regulations differ significantly from those that apply to resident Indians. This is a complete guide on Income Tax for NRIs
Let’s begin: With the Great NRI Saga.
WHAT IS INCOME TAX?
A tax levied on people or organisations based on their earnings is known as an income tax. Generally speaking, income tax is calculated by multiplying the taxable income by the tax rate. The type of income and the traits of the individual can affect the tax rate.
A.Determination of one’s residential status:
If you meet any of the following requirements, you are deemed an Indian resident for the fiscal year:
- When you spend a minimum of six months (182 days) in India within the fiscal year.
- You have spent two months (60 days) in India the year before and a full year (365 days) in India throughout the preceding four years.
Note: Only the first requirement applies to Indian citizens who work overseas or who are crew members on Indian ships; they become residents after spending a minimum of 182 days in India.
A Person of Indian Origin (PIO) who travels to India is subject to the same rules. These people are exempt from the second requirement. A PIO is a person who was born in undivided India, either through his parents or any of his grandparents.
Should you not meet any of the above requirements, you shall be deemed as a Non-Resident of India.
Amendment to the definition of “resident but not ordinary resident” (RNOR)
- If an individual satisfies the following requirements, they will be designated as RNOR for the entire year.
- If you have not resided in India for nine of the ten years prior to the year of consideration, or if you have visited the country for no more than seventy-nine days in the seven years prior to the year of consideration
B.Is the income earned outside taxable?
- According to the income tax regulations previously indicated, an NRI’s income taxes in India are determined by his residency status for the year.
- If you are considered a “resident,” India will tax your worldwide earnings. Your income generated or accumulated in India is taxable there if your status is “NRI.”
- Examples of income earned or accumulated in India include pay paid in India or compensation for services rendered there, income from a house property located there, capital gains on the transfer of an asset located there, income from fixed deposits, and interest on a savings bank account. An NRI must pay taxes on these earnings.
- Outside of India, income is not subject to taxation in India.
- Taxes are not applied to interest earned on FCNR and NRE accounts. In the hands of an NRI, interest on NRO accounts is taxed.
C.Is one required to file income taxes in India?
Whether they are an NRI or not, everybody in India whose income exceeds Rs. 2,50,000 must file an income tax return(ITR).
July 31st is the last date to file income tax returns in India for NRIs unless the government extends it.
D.Taxable income for an NRI
Your salary income is taxable in India when you get it, or it may be paid by someone else. Consequently, your salary will be governed by Indian tax regulations if you are an NRI and receive it directly into an Indian account. The tax rate on this income is based on your tax slab.
- Income from salary:
If you provide services in India, your salary will be deemed to have originated in India.
Therefore, regardless of where you receive your money, even if you are an NRI, if it is paid for services you render in India, it will be subject to Indian taxes.
Assume you are an Indian citizen and that your employer is the Government of India. In that instance, your salary income will be subject to Indian taxation if your service is provided outside of India.
It should be noted that ambassadors and diplomats get tax exemptions on their income.
- Income from house property:
An NRI’s income from a property located in India is subject to taxation.
The same formula that applies to residents will be used to calculate such income. This property might be unoccupied or rented out. An NRI is eligible for a 30% standard deduction, a property tax deduction, and a home loan interest deduction. Under Section 80C, the NRI is additionally eligible for a deduction for principal repayment. Under Section 80C, stamp duty and registration fees paid at the time of property purchase may also be recovered.
Income from real estate is subject to appropriate slab rates of taxation.
- Rental payments:
Rent payments made by a tenant to an NRI owner must include a 30% TDS deduction.
The income may be deposited into the NRI’s account in their current home country or into an account in India.
- Income from Capital gains:
Any capital gain resulting from the transfer of an Indian-owned capital asset is subject to Indian taxation.
In India, capital gains on investments made in Indian securities and shares are likewise subject to taxation. Should you sell your home and realise a long-term capital gain, the buyer is required to deduct 20% of the sales tax. But, if you invest in real estate as defined by Section 54 or capital gain bonds as defined by Section 54EC, you are eligible to get a capital gains exemption.