Benjamin Franklin once said “In this world, nothing can be said to be certain, except death and taxes.” Yes, taxes are unavoidable.
Among the taxes that citizens of our country have to pay, one of the more popular ones is the tax on the Income earned, also called as the Income Tax. As the Government levies taxes on its citizen, it also allows for certain deductions for saving, investing, charity, medical expenses, etc.
Depending upon the duration of stay in India, an individual is categorised either as a resident or a non-resident Indian.
To be categorised as a Non-Resident Indian (NRI), the following conditions would need to be met.
• You are out of India for at least six months (182 days to be exact) during the financial year
• You are out of India for two months (60 days) or more for the year in the previous year and have not lived for one whole year (365 days) in the last four years
If you are an Indian citizen working abroad or a member of a crew on an Indian ship, only the first condition applies to you – which means you are an NRI when you spend less than 182 days in India.
What is the difference in taxability laws?
If you are an NRI, you will be taxed only on the income by means of salary or other any other means earned in India. However, for a resident Indian all income, whether earned in India or abroad, is taxable in India.
Types Of Incomes Earned In India and are Taxable
• Income from Salary
• Income from House Property
• Income from Business and Profession
• Other Income in the form of capital gains
What are the income tax deductions available to an NRI?
As with the residents, NRI is also allowed for deductions and exemptions on the total income. The important deductions available are:
Deductions under Section 80 C
Most of the deductions available to a resident Indian are allowed for an NRI too, like payment of Insurance Premiums, Investment under ELSS schemes, Children’s tuition fee payment, Payment of premiums for ULIP, Principal Repayment of Home Loan etc.
The deductions that an NRI cannot claim is an investment in PPF, NSC Post Office Savings Schemes, and Senior Citizens Saving Scheme, as these investments are restricted to a resident Indian. Deduction under Section 80CCG for Rajiv Gandhi Equity Savings Scheme is also not allowed for NRIs.
Deduction under Section 80E
Section 80E gives a deduction for the interest paid on the educational loan. NRIs are eligible for availing this benefit like the residents.
NRIs can also avail deductions under other Sections of the IT Act like 80D, 80G, 80TTA, 80 CCG and 80DD.
Real estate related deductions
Deductions for income from a house property
Income from house property is treated in the same way as for a resident. An NRI can avail deduction for the interest portion of the house loan under Sec 24. They can also claim a deduction for property taxes paid.
Capital gains from sale of property
If the NRI sells his property before the period of three years since the date of purchase, gains (Difference between purchase and sale value) are added to his/her income and taxed as per the slab. The NRI will be subject to a TDS of 30 percent irrespective of his or her tax slab.
When the sale is made after three years, it is considered as long term capital gains and gets the benefit of indexation. NRIs can avail exemptions under Sec 54, Section 54 EC and 54F for long term capital gains. These exemptions relate to the investment of the gains in approved bonds /instruments or a different house property. However, they will incur a TDS of 20%
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There have been sweeping changes to the Indian tax laws with respect to residential status of an individual which may result in expanding his tax base in India and he may qualify to be a ‘stateless’ person.
Very delighted to come across this useful article. We must consider the facts that when filing ITR, NRIs must identify their residence tax status in India based on their time of stay throughout the fiscal year. NRIs can also use the ITR-1 form to file their tax returns with an annual revenue of less than INR 5 million. According to Section 139AA of income tax act, persons who are not residents of India are not required to include ther aadhar number in their ITR. NRs with a total of more than INR 5 million must report the cost of certain assets (both movable and immovable) in India, as well as their associated liabilities, according to the assets and liabilities table (schedule AL). Non-residents who are claiming a tax refund under ITR but do not have an Indian bank account should include the data of their most recent foreign account for refund issuing. Non-resident citizens should be aware that if their exempt LTCG income exceeds the basic tax exemption ceiling of INR 250,000 they must file an ITR, even if their total taxable income is less than the tax threshold limit.