Non-Resident Indians (NRIs) face a unique set of tax rules when it comes to their income earned in India. Understanding these regulations is crucial for NRIs to ensure they comply with Indian tax laws and avoid any penalties. NRI taxation in India covers a wide spectrum, including income from various sources like employment, business, rental properties, and investments. This article will provide an overview of the key aspects of NRI taxation, helping NRIs navigate the complexities and make informed decisions.
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Income Tax Slabs for the New Tax Regime FY 2023–24:
Income Tax Slab
Income Tax Rate
Up to 3,00,000
Nil
3,00,001 - 6,00,000
5%
6,00,001 - 9,00,000
10 %
9,00,001 - 12,00,000
15 %
12,00,001 - 15,00,000
20 %
Above Rs. 15,00,000
30 %
Income Tax Slabs for the New Tax Regime FY 2024–25:
Income Tax Slab
Income Tax Rate
Up to 3,00,000
Nil
3,00,001 - 7,00,000
5%
7,00,001 - 10,00,000
10 %
10,00,001 - 12,00,000
15 %
12,00,001 - 15,00,000
20 %
Above Rs. 15,00,000
30 %
Am I Required to File My Income Tax Return in India?
Yes, if your income exceeds Rs 2,50,000 in a financial year, you are required to file an Income Tax Return in India, even if you reside abroad.
When is the Last Date to File an Income Tax Return in India?
The last date for filing Income Tax Returns for NRIs is usually July 31st. However, the government may extend this deadline in certain circumstances.
Do NRIs have to Pay Advance Tax?
If your estimated tax liability exceeds Rs 10,000 in a financial year, you are required to pay advance tax. Failure to pay advance tax on time may result in interest charges under Sections 234B and 234C of the Income Tax Act.
Taxable Income for an NRI
Your salary income is considered taxable in India if you receive it in India or if someone receives it on your behalf. For instance, if your salary is directly credited to an Indian bank account, it will be subject to Indian tax laws. This income is taxed according to the applicable income tax slab rates.
NRI Taxable Income
Non-Resident Indians (NRIs) have certain income sources that are taxable in India, even if they reside abroad. Here are the key areas:
Income from Salary
Indian Services: If your services are rendered in India, your salary income is taxable in India, regardless of where you receive the payment.
Government of India Employees: Even if you are an Indian citizen working for the Government of India abroad, your salary is generally taxable in India.
Exemptions: Diplomats and Ambassadors typically enjoy tax exemptions on their income.
Example: Ajay worked for an Indian company in China. Despite receiving his salary in China, it would be taxable in India as his services were rendered in India.
Income from House Property
Property in India: Income from any property located in India is taxable for NRIs, whether it's rented out or vacant.
Tax Treatment:
Standard Deduction: 30% standard deduction is allowed.
Deductions: Property taxes, interest on home loans, and principal repayment under Section 80C are deductible.
Taxation: Income from house property is taxed at applicable slab rates.
Example: Nandini owns a house in Goa that she rents out while living in Bangkok. The rental income is taxable in India.
Rental Payments to NRIs
TDS Deduction: Tenants must deduct TDS at 30% while paying rent to an NRI landlord.
Form 15CA/15CB:
Form 15CA: Always required to be submitted online to the income tax department.
Form 15CB: Required in most cases, obtained from a Chartered Accountant (CA), certifying TDS details.
Exceptions:
Remittance does not exceed Rs 5,00,000 in a financial year.
Lower TDS is deducted with a certificate under Section 197.
Transaction falls under Rule 37BB of the Income Tax Act (check the complete list).
Income from Other Sources
Interest Income:
Interest from Indian bank accounts is generally taxable.
Interest on NRE and FCNR accounts is usually tax-free.
Indian Operations: Income earned from a business controlled or set up in India is taxable for NRIs.
Income from Capital Gains
Capital Assets in India: Gains on the transfer of capital assets located in India are taxable.
Indian Investments: Gains on investments in Indian shares and securities are taxable.
TDS on Property Sale: Buyer deducts TDS at 20% on long-term capital gains from property sales.
Exemptions: Capital gains exemptions can be claimed under Section 54 (investment in another house) or Section 54EC (investment in capital gain bonds).
Non-Resident Indians (NRIs) who invest in certain Indian assets can avail of specific tax benefits under the Income Tax Act. These provisions aim to encourage foreign investment in India.
Special Provision for Investment Income:
Tax Rate: Income earned from the following investments acquired in foreign currency is taxed at a flat rate of 20%:
Shares in Indian companies (public or private)
Debentures issued by publicly listed Indian companies
Deposits with banks and public companies
Securities of the Central Government
Other assets of the Central Government as specified in the official gazette.
Filing Returns: If this investment income is the only income for the financial year and Tax Deducted at Source (TDS) has been deducted, the NRI is not required to file an income tax return.
Special Provision for Long-Term Capital Gains (LTCG):
Taxation: LTCG arising from the sale or transfer of the above-mentioned foreign assets is taxed without the benefit of indexation and without any deductions under Section 80.
Exemption: NRIs can avail an exemption on the LTCG profit under Section 115F if the profit is reinvested in:
Shares of an Indian company
Debentures of an Indian public company
Deposits with banks and Indian public companies
Central Government securities
NSC VI and VII issues
The exemption is granted proportionately if the cost of the new asset is less than the net consideration.
Holding Period: If the newly acquired asset is transferred or sold within 3 years, the previously exempted profit will be added to the income of the year of sale/transfer.
Continued Availability: These special provisions may be available to NRIs even after they become residents – until the invested asset is converted to money – upon submission of a declaration to the assessing officer.
Opting Out of Special Provisions:
NRIs have the option to opt out of these special provisions. In such cases, their income (investment income and LTCG) will be taxed under the regular provisions of the Income Tax Act.
Deductions and Exemptions for NRIs
Non-Resident Indians (NRIs) are eligible for various deductions and exemptions from their taxable income, similar to resident Indians. This guide outlines some key areas:
Deductions under Section 80C:
Up to Rs. 1.5 lakhs can be deducted under Section 80C from gross total income.
Allowable Deductions:
Life Insurance Premiums: Payments for policies in the NRI's name, spouse's name, or any child's name (premium less than 10% of sum assured).
Children's Tuition Fees: Payments for full-time education in any Indian school/college.
Home Loan Principal Repayments: Including stamp duty, registration fees, and expenses for property transfer.
Unit-Linked Insurance Plans (ULIPs): With life insurance cover.
Equity-Linked Savings Schemes (ELSS): Offer tax benefits (EEE) and potential for market-linked returns.
Other Allowable Deductions:
House Property Income: NRIs can claim deductions for property tax, home loan interest, and parental insurance (for properties in India).
Section 80D (Health Insurance):
Up to Rs. 25,000 for self, spouse, and dependent children.
Up to Rs. 25,000 for parents.
Up to Rs. 50,000 if the insured are resident senior citizens.
Rs. 5,000 for preventive health check-ups.
Medical expenses for resident senior citizens (not covered by insurance) up to Rs. 50,000.
Section 80E (Education Loan Interest): For higher education of the NRI, spouse, children, or legally-guarded students. No limit, deductible for 8 years or until interest is fully paid.
Section 80G (Donations): For eligible social causes.
Section 80TTA (Savings Bank Interest): Up to Rs. 10,000 on savings accounts with banks, co-operative societies, or post offices.
Deductions Not Allowed to NRIs:
Section 80C: PPF, NSCs, Post Office 5-year deposits, SCSS.
Section 80DD, 80DDB, 80U: Deductions for disability-related expenses.
Exemption on Sale of Property:
Long-term capital gains are taxed at 20% with 20% TDS.
Exemptions:
Section 54: On long-term capital gains from the sale of a house property.
Section 54EC: On reinvestment of capital gains from the first property sale into specific government bonds (restricted to land/building gains since FY 2018-19).
Section 54F: On the sale of any asset other than a house property.
Avoiding Double Taxation
NRIs can mitigate the risk of double taxation (being taxed on the same income in both India and their country of residence) by leveraging the Double Taxation Avoidance Agreement (DTAA) between the two countries.
Exemption Method: Income is taxed only in one country and exempt in the other.
Tax Credit Method: If taxed in both countries, tax relief can be claimed in the country of residence.
Budget 2021 introduced Section 89A to address hardships faced by NRIs due to double taxation on income from foreign retirement accounts. This provision aims to provide relief when these accounts are not taxed on accrual in the foreign country but taxed at withdrawal.
Surcharge Rates for NRIs
NRIs are subject to surcharge on income tax, similar to resident Indians. The surcharge rates vary based on the total income:
10% for income exceeding Rs 50 lakhs but up to Rs 1 crore.
15% for income exceeding Rs 1 crore but up to Rs 2 crore.
25% for income exceeding Rs 2 crore but up to Rs 5 crore.
37% for income exceeding Rs 5 crore.
Note: The maximum surcharge under the new tax regime is 25%.
Surcharge is subject to marginal relief and applicable to NRIs.
Rebate under Section 87A
The Section 87A rebate is not available to NRIs under either the old or new tax regimes.
When Can You Call Yourself an NRI?
A Non-Resident Indian (NRI) is an Indian citizen who resides outside India for a significant period. Determining your residency status for tax purposes can have significant implications, including your tax liability, eligibility for certain benefits, and access to financial services.
Key Factors Determining Residency:
Physical Presence in India:
182 Days Rule: You are generally considered a resident if you spend 182 days or more in India during the financial year.
60/365 Days Rule: You are also considered a resident if you have been in India for 60 days or more in the previous year and have lived for 365 days or more in the last four years of the previous year.
PIO Status:
If you are a Person of Indian Origin (PIO) and your total income (excluding foreign sources) is less than or equal to 15 lakhs, you are generally considered a resident if you spend 182 days or more in India during the financial year.
RNOR (Resident but Not-Ordinary Resident):
You are classified as RNOR if you meet certain conditions regarding your non-residency in India during the preceding years.
Recent amendments have expanded the definition of RNOR, impacting individuals who visit India for extended periods.
Deemed Residency:
Citizens of India earning more than Rs 15 lakh from Indian sources may be deemed residents if they are not liable for tax payments in any other country.
Important Considerations:
COVID-19 Special Relief: Certain relaxations were provided for the financial year 2019-20 due to the COVID-19 pandemic.
Tax Implications: Residency status significantly impacts your tax obligations.
Consult a Tax Professional: For accurate and personalized advice, it is crucial to consult with a qualified tax advisor.
Conclusion
NRI taxation in India can be difficult, but with careful planning and expert guidance, NRIs can effectively manage their tax liabilities while maximizing their returns. By staying informed about the latest tax laws and regulations, consulting with qualified tax professionals, and maintaining accurate records, NRIs can ensure compliance and minimize their tax burden.
FAQs
What types of income are taxable for NRIs in India?
NRIs are required to pay taxes in India on income earned or received in the country. This includes salary, rent, capital gains, and interest. However, certain income types, such as agricultural income or specified investments like tax-free bonds, may be exempt.
Are NRIs required to pay tax on their global income in India?
As an NRI, only income that accrues or is received in India is taxable. Global income, including salary received abroad, is not subject to tax in India.
Are NRI fixed deposits tax-free?
NRE fixed deposits are tax-free, but interest earned on NRO fixed deposits is taxable as per NRI tax regulations.
Is income from agricultural land taxable for NRIs in India?
No, income earned from agricultural land in India is exempt from tax for NRIs.
Do NRIs have to pay capital gains tax on the sale of property in India?
Yes, NRIs must pay capital gains tax when selling property in India. The buyer must deduct tax on the gains. For long-term gains, the tax deduction rate is 20%, while for short-term gains, taxes are deducted at slab rates.
When should an NRI file an income tax return in India?
NRIs must file a tax return if their gross total income in India exceeds ₹2.5 lakh during a financial year. The filing deadline is usually July 31 of the assessment year, unless extended by the government.
Does an NRI senior citizen have a higher tax exemption limit in India?
No, the higher exemption limits of ₹3 lakh and ₹5 lakh are only available to resident senior and super senior citizens under the old tax regime. NRIs, regardless of age, must file returns if their income in India exceeds ₹2.5 lakh.
Should taxes be deducted when making payments to NRIs?
Yes, specified payments such as rent or professional fees to NRIs require tax deduction at source. The payer must obtain a TAN and file Form 15CA, while Form 15CB must be certified by a Chartered Accountant.
Can NRIs avoid double taxation on income received in India?
Yes, Double Taxation Avoidance Agreements (DTAA) between India and other countries help NRIs avoid being taxed twice. NRIs can claim credit for taxes paid in India while filing returns in their country of residence.
Can NRIs open a Post Office savings account in India?
No, most Post Office schemes are unavailable to NRIs. However, existing accounts can remain active until maturity but cannot be renewed.
†Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. The sorting is based on past 10 years’ fund performance (Fund Data Source: Value Research). For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in *Past 10 Year annualised returns as on 01-01-2025 *All savings plans are provided by the insurer as per the IRDAI approved insurance plan.
Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
#The investment risk in the portfolio is borne by the policyholder. Life insurance is available in this product. The maturity amount of Rs 2 Cr. is for a 30 year old healthy individual investing Rs 18,000/- per month for 30 years, with assumed rates of returns @ 8% p.a. that is not guaranteed and is not the upper or lower limits as the value of your policy depends on a number of factors including future investment performance. In Unit Linked Insurance Plans, the investment risk in the investment portfolio is borne by the policyholder and the returns are not guaranteed. Maturity Value: 1,06,79,507 @ CAGR 4%; 2,12,15,817 @ CAGR 8%. All plans listed here are of insurance companies’ funds. *Tax benefits and savings are subject to changes in tax laws. All plans listed here are of insurance companies’ funds.
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs. **Returns are based on past 10 years' fund performance data (Fund Data Source: Value Research).
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