India positioned as a prominent global economic force and with Non-Resident Indians (NRIs) retaining significant financial exposure to the country whether through investments, real estate or family ties. As it relates to NRI taxation in India, there is much confusion. Questions such as, “Is foreign income taxable?”, “What deductions can be claimed?”, or “How do I determine my residential status?” tend to come up frequently. In this blog, we will provide clarity on everything you should know about Income Tax for NRIs, including: residential status, sources of income taxable in India and deductions that may apply. Whether you are an NRI investor, a salaried professional living abroad, or willed a property from your ancestors here in India, this blog will assist you in maintaining compliance and understanding how to optimize your taxes.
Who is an NRI Under the Income Tax Act?
The key to NRI Taxation is understanding your residential status. In India, your residency status for taxation purposes is not basics citizenship status, but there are a specific number of days you stay in the country during a financial year. You are considered as an NRI if: · You have stayed in India for less than 182 days in a financial year (April to March), or · You have stay in India for less than 60 days in that financial year, and less than 365 days in 4 preceding financial years. If either applies you are considered as a Non-Resident Indian (NRI) and your income tax in India will only be for specified sources - conversely all of a residential Indian's income worldwide is taxable.
Importance of Understanding NRI Taxation in India
Knowledge of NRI taxation in India is important for several reasons
• To Avoid Penalty: While not having knowledge of the Indian Tax laws is not an excuse, ignorance of the law could subject you to interest, penalties, and litigation.
• To Facilitate Repatriation: Tax compliance will ensure you can move your money to your foreign accounts without interference.
• To Facilitate Planning: Planning allows NRIs to invest and save taxes.
• To Allow You to Act Globally: The Indian disclosures are likely to factor into the disclosures you make in the country of residence.
What Type of Income is Taxable for NRIs?
After your status of NRI has been established, only the income you earn or accrue in India (you can get paid for services you perform in India) is subject to tax in accordance with Indian laws. Below is a brief overview of the sources of income that fall under NRI taxation in India: a) Salary Income
If an NRI receives a salary for services rendered in India, the nature of the income is taxable in India regardless of the place where the salary is credited. Where the location of the employment is abroad and the salary earned is for services rendered outside of India, it is not taxable in India.
b) House Property Income
If an NRI generates income from a property located in India (in the form of. rent), this income would be fully taxable under the NRI rules. In determining taxable income from house property, as with any other income, you will be allowed deductions (including, for example, a standard deduction (30%) from gross rent, yearly commutation tax, and interest on borrowed capital>) as outlined by section 24.
c) Income From Other Sources
Interest income from:
• Savings bank accounts in India – Taxable
• NRO (Non-Resident Ordinary) accounts – Taxable
• NRE (Non-Resident External) and FCNR (Foreign Currency Non-Resident) accounts – Exempt
d) Capital Gains
• Gains from selling property, mutual funds, and/or shares in India is taxable.
• Long term capital gains (LTCG) and short-term capital gains (STCG) are taxed in accordance with rates applicable at that time. Long term capital gains for listed shares and equity mutual funds are taxed at 10% (above ₹1 lakh) whereas the long-term capital gains from the property (with indexation) is taxed at 20%.
e) Business Income
Profits of a business set up or controlled in India by the NRI are taxable.
f) Income from Fixed Deposits
Interest on Fixed Deposits in NRO accounts is taxable on the full amount, while NRE FDs are exempt from tax.
What Income is Not Taxable for NRIs in India?
Not all income earned abroad as an NRI is taxable in India. Here are common exempt incomes under the NRI taxation in India:
• Foreign income - such as salary, rental income, or business income earned outside India.
• Interest on NRE and FCNR accounts.
• Gifts from relatives - received from relatives to the extent of ₹50,000 within a financial year.
• Long-term capital gains on listed shares/mutual funds for up to ₹1 lakh in a year.
Deductions and Exemptions Available to NRIs
Yes, an NRI may also claim benefits as per various sections of the Income Tax Act. A few popular ones are:
a). Section 80C
NRIs are eligible for deductions of ₹1.5 lakh under this section for:
• Life insurance premiums
• Tuition fees (for children studying in India)
• Repayment of home loan principal
• ULIPs (Unit Linked Plans)
• ELSS (Equity Linked Savings Scheme)
Note: NRIs cannot invest in PPF schemes.
b) Section 80D
For premiums on health insurance:
• NRIs can claim deduction for self/family of ₹25,000
• For parents who are senior citizens: ₹50,000
c) Section 80E
The interest paid on education loan for self, spouse or child will be deductible.
d) Section 80G
The deduction is available for the donated amount made to approved charitable organizations.
Tax Filing Rules for NRIs
NRIs must file Income Tax Returns (ITR) in India if their taxable income exceeds ₹2.5 lakh in a financial year.
ITR must be filed if:
• Your income has tax deducted at source (TDS); and you are expecting a refund.
• You have capital gains (even if less than ₹2.5 lakh).
• You wish to claim double taxation relief under the DTAA (double tax avoidance agreement).
The due date for NRIs to file an ITR is 31st July of the assessment year (unless extended by the Government).
TDS Rules for NRIs
TDS (Tax Deducted at Source) on income from India is much more severe on NRIs than residents. Common TDS rates include:
• Rental income – 30%
• Capital gains on property sale – up to 20% (plus surcharge & cess)
• Interest on NRO account – 30%
• Mutual fund capital gains – STCG or LTCG rules.
In the case of property sold to an NRI, they would have to pay TDS before making payment to the NRI, and only afterwards, if excess TDS is deducted, can they subsequently expect a refund from the Indian government.
Double Taxation Avoidance Agreement (DTAA)
India has executed DTAA treaties with more than 90 countries. The implications of such treaties allow NRIs to escape having to pay taxes on the same income in both India and their country of residence.
The benefits include:
• Tax credits for taxes owed in one country
• Exemption or lower taxation for certain types of income, such as dividends or interest
In order to get DTAA benefits, NRIs will need to provide a Tax Residency Certificate (TRC) from their country of residence.
Taxable Income for NRIs in India
If you are an NRI, you will only be taxable in India on the income that to either:
• Is received or
• Accrues or arises
here is a breakdown of some types of income and how common income types are taxable under
Income Tax for NRI:
a). Income from Salary
An NRI will be subject to tax in India on their salary if it was paid for services rendered in India.
An NRI will also be taxed if their salary is received in India, even if the services were rendered outside of India
b) Income from House Property
Rental income from property located in India will be taxed for NRIs.
NRIs may claim some standard deductions for rental income in India, including:
• 30% deduction on rental income
• Municipal taxes paid
• Interest on home loan
c) Capital Gains Income
• All short-term and long-term capital gains (LTCG) arising from the sale of property, shares or securities in India, are fully taxable.
• For example, LTCG on listed shares held for more than 12 months is taxable at 10% without indexation, in excess of ₹1 lakh.
d) Interest Income
Interest earned by NRIs on:
• NRE (Non-Resident External) accounts – Exempt from tax
• FCNR (Foreign Currency Non-Resident) accounts – Exempt from tax
• NRO (Non-Resident Ordinary) accounts – Fully taxable
Where an NRI has a business in India or employs a profession from India (with operation or control from India), income will be taxable.
Importance of NRI Taxation Services
Dealing with taxes as an NRI can be complicated, especially if you have multiple sources of income, sold properties, or if you wish to claim treaty benefits under Double Taxation Avoidance Agreements (DTAA). This is when NRI taxation professionals can really add value.
A trusted taxation service will assist you to:
• establish an accurate residential status
• plan any investments to mitigate taxes
• file your tax returns and obtain any refunds
• manage your property TDS matters and annual compliance
• pay your taxes or claim your treaty benefits on time.
Not making mistakes in compliance will save you money and uphold your financial standing in India.
TDS Applicability for NRIs
NRIs are subject to Tax Deducted at Source (TDS) at higher flat rates:
Income Type
TDS Rate for NRI
Rent
30%
Interest (NRO)
Long-term capital gains
20%
Short-term capital gains
15%
Property Sale (Sec 195)
Up to 20% + surcharge and cess
NRIs can file ITR to claim refunds or reduce tax liability if TDS is higher than actual tax due.
Tax Deductions and Benefits for NRIs
While NRIs cannot use the same deductions as resident Indians, NRIs have a number of tax-saving options available:
NRIs can, for some qualifying investments, claim a deduction of ₹1.5 lakh under section 80C for:
• life insurance premiums • ELSS mutual funds • principal repayment on a home loan • tuition fees for children • ULIPs
b) Section 80D:
Deduction for up to ₹25,000 (then ₹50,000 for senior citizens) for health insurance premiums on self or family.
c) Section 80E:
There is no limit for the interest deduction on loans for higher education.
d) Home Loan Interest:
Under section 24(b), you can claim deduction on interest paid on home loans up to ₹2 lakh.
Note: NRIs cannot claim deductions under sections like 80GG (house rent allowance), 80TTA (interest from savings account), or 80U (disability).
Tax Advantages for NRIs
Some of the important tax benefits for NRIs include:
• Tax-Free NRE and FCNR interest (as long as NRI status is maintained)
• DTAA benefits (double taxation avoidance agreement): India has signed DTAAs with over 90 countries and as a result, NRIs can avoid double taxing the same income
• Capital gain exemption under sections 54, 54EC, and 54F for reinvestment of gains from sale of properties.
Common Issues Faced by NRIs in Indian Taxation
It can sometimes be challenging to understand the Indian tax system as a Non-Resident Indian. Some of the common challenges faced by NRIs include:
• Wrongly interpreting Residential Status
• Duke to not understand DTAA got to pay double tax
• TDS deductions even if it is not applicable or more than should be used
• Delayed or Missed filing of ITR
• Problems with Repatriation of Fund
• Incorrect use of NRO/NRE Accounts
Final Thoughts
Tax laws concerning Non-Resident Indians involve a detailed examination of your residential status, whether or not you have taxable income, and what type of allowable deductions you will be permitted. Given the increase in scrutiny by revenue authorities, and the steadily growing information-sharing between countries, NRIs must exercise some caution to ensure they remain compliant. Knowing how Income Tax for NRI applies to rental income, property sales or investment gains can provide you with reassurance and ensure that you are in control of your finances. If in question, consult with experts in NRI taxation Service, provided you can afford to and receive some good advice on completing your obligations in India.
(FAQs)
1. Is foreign income taxable for NRIs in India?
No, foreign income earned outside India is not taxable for NRIs. Only income that is received or accrued in India is taxed.
2. Do NRIs need to file income tax returns in India?
Yes, NRIs must file ITR in India if:
3. What is the TDS rate for property sale by NRIs?
TDS on property sale by NRIs can be up to 20% on long-term capital gains, plus applicable surcharge and cess.
4. Can NRIs invest in PPF or NSC?
No, NRIs are not allowed to open new PPF or NSC accounts, but they can continue existing ones until maturity.
5. How can NRI taxation services help?
NRI taxation services assist with:
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