Income Tax in India for NRI

This brief overview outlines the essential considerations and obligations for NRIs regarding income tax in India. 

What is Income Tax in India?

Income Tax in India is a levy imposed by the government on individuals and entities based on their income.

It is a direct tax where individuals, Non Resident Indians (NRIs), businesses, and other entities are required to pay a percentage of their earnings to the government.

This tax is governed by the Income Tax Act of 1961 and is a primary source of revenue for the government to fund various public services and infrastructure development.

Types of Taxes in India for an NRI

• Direct Taxes: These are levied on individuals and businesses based on their income or profits. Examples include income tax, corporate tax, and wealth tax.

• Indirect Taxes: These are imposed on goods and services and are included in their prices. Examples include Goods and Services Tax (GST), customs duty, and excise duty.

• State Taxes: These are imposed by state governments and include taxes like state excise duty, stamp duty, and state goods and services tax (SGST).

Overview of Old and New Tax Regime in India for NRI in 2024

The NRIs need to opt between the old and new income tax structure to file their Income Tax Returns (ITR) in Financial Year 2023-24.

Here are the key features of old vs. new tax regimes in India for NRIs:

1. Old Tax Regime:

   • Offers 3 tax rates: 5%, 20%, and 30%.

   • Allows deductions for various allowances and investments.

   • NRIs can claim benefits like Leave Travel Concession (LTC), House Rent Allowance (HRA), and deductions under sections 80C to 80U.

   • Tax is calculated progressively, not as a flat percentage of total income.

2. New Tax Regime:

   • Introduced in 2020 and offers lower tax rates.

   • Few deductions or exemptions allowed, like specific allowances related to work.

   • Simplifies the tax structure, making it easier to understand and manage.

   • NRIs have the option to choose between old and new regime when filing taxes.

Overall, while the old regime provides more opportunities for deductions, the new regime offers simplicity and lower tax rates, but with fewer tax-saving options.

Major Income Tax Deductions for NRI in Old Vs. New Tax Regime in FY 2023 -24

In comparing the major income tax deductions between the old and new tax regimes, it is essential to understand the key differences:

Who Should Pay Income Tax in India?

In India, the responsibility to pay income tax falls on a wide range of individuals and entities, not just those with high incomes.

• Salaried individuals

• Resident individuals taxed on global income

• Hindu Undivided Family (HUF)

• Firms

• Companies

• Association of Persons (AOP)

• Body of Individuals (BOI)

• Local Authority

• Artificial Judicial Person

• Non Resident Indians Earning Income from Assets/ Resources in India

Types of Income Heads in India for NRI

There are five main heads of income classified by the Indian Income Tax Department for an NRI, which are as follows:

Exceptions to the Tax Slab Rates for NRI

Not all types of income follow the regular tax slab rates. Capital gains income is an exception. 

It is taxed based on what the NRI owns and how long they have owned it. The duration determines if it is short term or long term. Different assets have different holding periods to decide their nature. 

The following table provides a summary of the holding periods, nature of assets, and applicable tax rates for capital gains tax on different types of assets.

Financial Year (FY) and Assessment Year (AY)

Let us understand the terms like financial year, assessment year and assesse below:

1. Financial Year (FY):

   The financial year is a 12-month period used by taxpayers for accounting and financial reporting. It runs from April 1st to March 31st of the following year and represents the period in which income is earned. It is abbreviated as "FY," like FY 2022-23.

2. Assessment Year (AY):

   The assessment year is the 12-month period immediately following the financial year, from April 1st to March 31st. During this time, taxpayers assess their income earned in the financial year and pay taxes accordingly. For instance, income earned in FY 2022-23 is assessed in AY 2023-24.

Who is an Assessee?

The assessee refers to individuals or groups who evaluate their income and pay taxes under the Income Tax Act. This can include individuals, partnerships, companies, associations, trusts, etc.

What is PAN and TAN Number in India?

The clear meaning of PAN and TAN number is as follows:

1. PAN:

   PAN stands for Permanent Account Number, a 10-character code issued by the Indian Income Tax Department. It uniquely identifies the NRI and records their tax-related activities. PAN connects all financial dealings to the NRI taxpayer. It is generally used for paying taxes or providing it to financial institutions like banks or mutual funds. 

2. TAN:

   TAN, or Tax Deduction and Collection Account Number, is a unique 10-character code also issued by the Indian Income Tax Department. It is essential for entities responsible for deducting or collecting taxes to obtain TAN. They must include it in their tax returns, payment challans, and certificates related to tax deduction or collection.

Residents and Non-Residents in India

Income tax in India is based on whether a taxpayer is a resident or non-resident. Residents are taxed on their worldwide income, earned both in India and abroad. Non-residents, however, are only taxed on their income earned in India. 

The determination of residential status is done separately for each financial year when calculating income and taxes.

Payment of Income Tax in India by NRIs

The list and concise breakdown of the different ways to pay income tax in India by an NRI is as follows:

• Tax Deducted at Source (TDS)

• Tax Collected at Source (TCS)

• Advance Tax

• Self-Assessment Tax

• e-Payment of Taxes

1. Tax Deducted at Source (TDS)

   • TDS is a mechanism where a part of income tax liability of the NRI is deducted by the person (deductor) who pays you income, such as your employer, bank, or any other person responsible for making such payments.

   • The deductor deposits the deducted tax with the government on your behalf.

   • You get credit for the TDS deducted when you file your income tax return.

2. Tax Collected at Source (TCS)

   • TCS is similar to TDS, but it is collected at the time of sale of certain specified goods or services. The seller collects the TCS and deposits it with the government.

   • You get credit for the TCS collected when you file your income tax return.

3. Advance Tax

   • Advance tax is a way to pay your income tax liability in installments throughout the financial year.

   • You are required to pay advance tax if your estimated tax liability for the year is Rs 10,000 or more.

4. Self-Assessment Tax

   • Self-assessment tax is the remaining tax liability that you need to pay after accounting for TDS, TCS, and advance tax paid.

   • You need to pay self-assessment tax by filing your income tax return and paying the tax due, if any, by the due date.

5. e-Payment of Taxes

   • You can now pay your income tax online through the e-filing portal of the Income Tax Department.

   • This is a convenient and secure way to pay your taxes.

   • You can pay using your debit card, credit card, net banking, or UPI.

Income Tax Return (ITR)

Each year, NRI taxpayers must submit their income details to the government using specific forms provided by the income tax department. There are seven different forms available for this purpose, and you need to select the right one based on your situation.

ITR Filing for NRIs

The Income Tax Department has made it mandatory to file income tax returns online, except for those who are 80 years old or above, and those earning less than Rs 5 lakhs per year and are not claiming refunds. The deadline for filing returns is usually July 31st after the financial year ends. 

Following are the consequences if you miss the deadline:

• You can not carry forward most losses to future years.

• Refund claims may be delayed.

• Getting home loans might become harder.

• You could face a late filing fee of up to Rs 10,000.

• Interest might be levied if taxes are due by July 31st.

List of ITR Forms

Income Tax Calculator to Estimate Income Tax in India

An income tax calculator is a free online tool that helps an NRI to estimate their income tax liability in India for the financial year 2023-2024. It considers various factors such as your income sources, investments, deductions, and exemptions to provide you with an accurate estimate of your tax payable. 

Important Dates for Income Tax Filing in India for FY 2023-24 (AY 2024-25)

*The dates are subjected to change.

Income Tax Saving Instruments in India for NRI in 2024

The following table shows the best tax saving investment options in India available for an NRI in 2024:

*The interest rates of government tax-saving investments are declared quarterly by the Government of India.