All about NRI Taxation

Following our current series on NRI, this week we will discuss about NRI taxation. When does an NRI become liable to pay taxes to Indian government? Under what circumstances is an NRI liable to pay taxes for his earnings? 

Residential Status

The major condition on which the income to be taxed depends is the residential status of the individual. As per Income Tax Act 1961, an individual is defined as an NRI, if:

• If you reside outside India for a period of 182 days or more during the relevant previous year.

·         If you are not present in India for 60 days or more during the previous year and again for a combined total of 365 days or more during the previous 4 years prior to the previous year.

If the individual doesn’t fulfil any of the above conditions, he is liable to be taxed as an Indian resident and liable to be taxed. Otherwise an NRI, is only liable to be taxed for income or capital gains made in India during the previous year. 

What is the taxable income for NRIs?

a) Salary – Any salary earned for services for any Indian entity during the previous year is taxable in India.

b) Property & Assets – Any income generated from renting, leasing or sale of property or any asset is subject to tax in India. A tenant who pays rent to an NRI owner should deduct TDS at 30%. The income can be received to an account in India or the NRI's account in the country he is currently residing.

c) Investment & Securities – any income earned or gains made (long/short term) is subject to taxation

Investment	TDS Rate Applicable
Bank Savings account : NRE, NRO, FCNR	NRE /FCNR: no TDS;                     NRO: 30.9%
Fixed Deposit: NRE, NRO, FCNR	NRE, FCNR: no TDS; NRO: 30%
Dividends, shares and mutual funds	No TDS
Equity -Capitals gains	No TDS on long-term gains (long term: more than 1 year); 15% on short term gains
Debt: Debt mutual funds, debenture gains	Long-term: 20% with indexation or 10% without indexation
	Short term gains added to your income and taxed at your income slab
Property, Gold gains	20% on long-term (gains from sale after 3 years )
	30% on short term gains

In short, any income earned or accrued in India is taxable in India.

Deductions allowed to NRIs

80C- A deduction of Rs. 1,50,000 is allowed under section 80C. However, the allowable areas of expenses and investments are limited as follows:

·         ELSS investment

·         ULIP investments

·         Life insurance premium – for self, spouse and children

·         Principal loan repayment for any housing loan in India

·         Children tuition fees – fees for any school, college or university in India. It is limited up to two children. 

80D- The benefits are similar to benefits made available to ordinary Indian resident. The health insurance can be taken for self, spouse, children and dependent parents. (i.e 15000 for below 60 years and 20000 for above 60 years)

80E – This deduction is allowable for interest on education loan. The loan can be taken for self, children or even for any one for whom NRI is guardian.

Other than section 80G and 80DD benefit can also be enjoyed by an NRI.