NRI Taxation
Table of Contents
NRI Taxation Service In Vadodara
The taxable income of an NRI solely relies on the residential status of the person in the concerned year. If the status is – Resident then the income, earned at national or international front, of the individual will be taxable in India, whereas, in the contrast case of NRI Status, the income that is earned in India will only be taxable in India. NRI Taxation Service In Vadodara. The examples of income earned in India includes the salary earned in India by doing a job or providing services in India, capital gains on transfer of ownership of assets that are situated in India, gain from a house property located in India, income from FDs or interest on savings bank account in India. Such incomes which are earned in India are taxable income for NRIs.
NRI Taxation Service In Vadodara
Basic Knowledge
There are so many NRI families in today’s world where a member of the family is working outside the country but sends money to his family back in India or makes investment planning for their families or their future. This raises a major concern about NRI Income tax return in India.NRI Taxation Service In Vadodara
During every tax filing season, every tax-paying citizen of the country tries to find out the best way he/she can save the total amount of income tax payable on their hard-earned money.
NRI Taxation – Deepti Bhagtani & Associates In Vadodara
Therefore, the NRI Income tax return works completely in favor of the NRI citizens because it allows them to bring NRI income to India, but income which is earned outside India by an NRI is not taxed in India.
NRI Taxation Rules
NRI citizens rules allow people with income earned outside India to invest in the country which adds to the economy of the country and therefore is a very favorable norm. This helps the government gain investments from NRI’s without spending money on non-residents. If there are any long-term or short-term gains received from the sale of assets in the country or investments made, then the gains will be taxed in India. So, retail income is taxed in India.
If an NRI inherits the property or any other kind of asset from their parents or relative, that will not be taxed in India when the ownership is being transferred. But if an NRIs total gains which would include earnings from all sources such as rent, dividend, capital gains, investment income, etc. exceeds INR 2.5lakh then they must file for the process of taxes.
NRI Taxation – Deepti Bhagtani & Associates In Vadodara
NRI citizens are not eligible to make a certain investment such as investing in National Saving Certificates (NSC), Senior Citizen Schemes, Post Office Time Deposits, or they are also not allowed to open new PPF accounts or extend their current PPF accounts.
However, a lot of other saving instrument schemes such as home loans, life insurance, pension plan, and equity-linked saving schemes for mutual funds are still allowed for NRIs to invest in. An NRI can also claim the amount of tuition fee that is paid for his spouse or children in India. Under section 80D, health insurance policies or health checkups paid by an NRI for his/her parents or dependents that are in India is allowed.
Income Tax Provisions for NRIs
A person is certified as an NRI only if he checks all the guidelines and directives asserted for it. If an NRI is earning income outside India, then that income will not fall under the jurisdiction of the income tax act. However, if he/she earns an income in India through various forms such as capital gains from investment, mutual funds, sale of assets, etc and the amount of capital gains exceed the basic exemption limit that is determined in the income tax act, then they will have to file for a tax return.
NRI Taxation – Deepti Bhagtani & Associates In Vadodara
As per the Income Tax Act, taxable income for NRIs is different from the income tax charged to residents of India, this difference lies between both of their tax slabs.
The main concerning points with NRI taxation is outlined as follows:
- Income tax slabs are based on the income expected for any gender, age, or other specification in case of an NRI.
- If there is TDS, then all the income generated by an NRI is charged irrespective of any threshold value.
- Nominal deductions are not applicable to any investment income except if there are specific situations.
- If an NRIs income is subject to the clause under Section 115G of the income tax act, then e filing of income tax is not required for an NRI.
Income Tax Act
There are specific provisions that are explained in the Income Tax Act that tells how income tax is chargeable for a non-resident Indian. These provisions are as follows:
- Section 115D: Calculation of taxable income of NRI person
- Section 115E: If income earned by NRI consist only investment income or income by way of long term capital gain then tax percentage on such income will charged at 20% rate.
Income Tax Act
- Section 115F: Non-chargeable capital gains generated by an NRI through a transfer of foreign exchange assets in a few cases, – here dealing with such exceptions the transfer of foreign exchange assets will not include taxes on them.
- Section 115G: This section provides exemption to NRI from filing NRI Income tax return under some cases.
- Section 115H: Section provides certain benefits of taxation for an NRI when it becomes a resident.
- Section 115I: Any income derived from a foreign exchange asset.
The above-mentioned rules on income tax for NRIs are subject to change depending on the direction and discretion of the Central Government and the Income Tax Department of the country.
Applicable Deductions and exemptions for NRIs
Sometimes NRIs tend to pay more tax than what they are initially liable to pay because most of their incomes are subjected to heavy TDS (Tax Deductible at Source). Therefore, it is important to know the applicable deductions and exemptions provided by the government for NRI taxation.
The deductions that are allowed for an NRI are as follows:
1. Section 80C:
- Life insurance premium payment.
- Payment of tuition fees.
- Principal paid on the loan that was taken for house property
- Investments made in ULIPs.
Deduction is applicable from income generated from house property
2. Section 80D:
- Premiums paid on the health insurance of a family member or any other dependent up to 50,000 if parents are senior citizen and 25000 if parents are not senior citizen.
- Preventive health check-ups are also deductible up to a maximum of INR 5,000.
3. Section 80E:
Interests that are paid on an education loan for the NRIs own higher education, or of his spouse and children or any dependent student is deductible to a period of 8years or until the interest is paid.
4. Section 80G:
Donations made under section 80G
5. Section 80TTA:
Interest on saving bank accounts up to the amount of INR 10,000.
Scope of Income taxable in India:
Depending on the residential status of an individual, below incomes would come under the ambit of Indian taxation and taxable in India.
NRI Taxation
Tax and TDS on Property Sales
Non-Resident Indians (NRIs) have a good investment portfolio in India. Often, to repatriate funds abroad or reinvest in an alternate property, they decide to sell their immovable property (inherited or self-acquired) in India.
NRIs are free to sell their assets, but any sale of assets attracts Capital gain taxes! The buyer of such properties are obliged to deduct taxes (popularly known as ‘withholding tax’ or ‘TDS’)
TDS
So what, let them deduct the taxes and pay to the Government. But the catch is the TDS rate! If the property is worth Rs.2 Crore, the TDS to be done is Rs.47.38 lakhs (TDS @ 23.69%). Too much isn’t it?
So, many NRIs seek advice on the ways to reduce TDS on the sale of property in India. We are serving hundreds of NRIs on TDS matters. In case you have any requirement for TDS matters, please feel free to consult us at Deepti Bhagtani & Associates
Income tax doesn’t provide any direct definition for Non Resident Indians (NRIs) but it lays down certain criterias to certify citizens as residents of India:
According to Income Tax regulations, a citizen will be a resident of India in the previous year, if:
He/she is in India for at least 182 days in that year, OR
If the individual was not in India for at least 182 days in the previous year but he/she was in India for at least 365 days during the last 4 years to that year and at least 60 days during that year.
An NRI can make an application in Form 13 for deduction of income tax at lower rates or nil deduction on income received in India. If the AO is satisfied that the total income of the payee justifies the deduction of income tax at lower rates or no deduction of income tax, the AO shall give the NRI lower/nil TDS certificate as appropriate for this purpose
NRIs are allowed to invest in India through the portfolio investment scheme, or PIS—a scheme that enables them to purchase and sell shares of listed Indian companies on recognised stock exchanges by routing such transactions through their NRE or non-resident ordinary (NRO) savings account.