Income Tax Rules for NRI in India

Generally, there is no taxation provision on the income earned outside India. But the income of NRI from capital gains from shares, mutual funds, and rent on the property crosses the basic limit mentioned for exemption; in that case, NRI has to pay tax to the Indian government.

The taxation system is essential in nation-building and improving the economy. Various taxes are levied on the product and services used by the people of India. These taxes make products and services better and build a stable hierarchy. Some of the most common taxes in India are income tax, service tax, property tax, and TDS. These are commonly known forms of taxes that you might have to pay even if you are an NRI.

According to Income Tax Act 1961, NRIs have to pay tax if they fall under the specific jurisdiction of the income tax act.

Who is NRI?

You are considered an Indian resident if you meet the following conditions mentioned below.

  • If you live in India for at least six months in a financial year.
  • You have spent two months in the previous year and lived a whole year in the last four years.

If an Indian citizen works abroad or works as a crew member on any Indian ship, in that case, the only first condition will apply. The same condition also applies to Persons of Indian Origin who visited India and earned capital gain.

Income Tax Rules for NRI in India

Income Tax Rules for NRI

The calculation of taxable income for an NRI is quite different from the Indian resident’s income. Here are some essential points to keep in mind while NRI taxation in India.

  • The income tax slab can vary based on the assessee’s age, gender, and other categories.
  • For TDS, the assessee’s income will be charged on the threshold value.
  • There is not any deduction on the investment other than mentioned in specified situations.
  • Generally, tax filing is not required for NRI in income subject to clauses under Section 115G under the IT act.

Here are some special provisions mentioned in the IT act for NRIs.

Computation of Tax Under Section 115D

  • There is not any deduction for the computation of income from investment.
  • If the assessee is an NRI, they will not get a deduction on total gross income. However, if the income from investment and long-term capital gains is earned, it will be reduced, and the remaining income can be considered for deduction.

Tax on Investment and Long-Term Capital Gains

  • If there is a case when NRI’s total income includes income from investment and long-term capital gains other than debentures, shares, and other securities specified by the IT act. And income is earned in the form of long-term capital gains; in that case, the income tax will be calculated at the rate of 20% on investment, 10% on capital gains for the long term, and other provisions if applicable.
  • If the NRI has earned some capital gains on the invested part in six months and the cost of acquiring a new asset is equal to an earlier asset, then taxation will not be applicable here.
  • When the foreign exchange asset is transferred or converted three years from the date of acquisition, the capital gain is not charged.
  • The TDS can be deducted from the above income as per the IT act. However, all these rules can be changed or modified by India’s Central Government and Income Tax Department based on specific scenarios.

Tax Exemption for NRI

Several types of income are exempted for the NRIs under the IT act. Below is a shortlist of such sources of income exempted for NRIs.

  • Interest Earned on any FCNR or NRE Account
  • Interest received on government-issued saving certificated and even specified bodies.
  • Dividend income on the shares of the domestic company in India
  • Any long term capital gain from listed equity shares and equity-based mutual funds
  • In some cases, the capital gain can also be exempted under section 54. 54F, and 54EC.

Tax Deduction for NRI

The tax liability calculated for NRI more strictly than that of residents. Below are some specific conditions where tax deduction can be allowed for NRIs.

Tax Deduction for NRIs under Section 80C

  • NRI can get a tax deduction on life insurance premium payment if the premium amount is less than 10% of the sum assured, and it must be of NRI, spouse, and offspring.
  • Tuition fee payment to any institution in India for full-time education can be allowed for deduction for up to 2 children.
  • Payment of EMI is also eligible to get a deduction under this section of the Income Tax Act.
  • Any investment made in ULIPs of LIC mutual funds.
  • Deduction from house property income is also available for NRIs.

Deduction under Section 80D for NRI

  • Health insurance premiums for immediate family and dependents can be allowed for deduction.
  • There is up to a Rs 5,000 deduction for preventive health checkups. 

Deduction under Section 80E for NRIs

  • Interest paid on higher education loans for children, spouse, and even for self and dependents. 

Deduction under Section 80G for NRI

  • If the donation is mentioned under Section 80G of the IT Act, then also NRI is eligible for deduction. 

Deduction under 80TTA for NRI

  • If NRI has a savings account in an Indian bank, there is a deduction for up to Rs 10,000 interest earned on the savings bank account. 

NRI’s Tax Return

Not any income can be taxed from NRIs; some special provisions and sections explain the sources of income-eligible to get taxed from NRIs in India. The TDS income will be taxed based on prior information mentioned by the assessee. However, if the TDS amount is more than the tax liability of the NRI, in that case, they can claim a refund or claim exemptions while filing the return. NRIs can visit the website of the Income Tax Department of India to get more information on the safe. 

Conclusion

When NRIs stay in India, they make some investments or do other financial activities to generate income. Then they can be responsible for paying tax on the earned income in the way we discussed in the article. Thus. We hope you have understood the Income Tax Rules for NRI in India. If you still doubt the same, you can comment down to get some solutions. Also, please share this article so that more people can learn about this term.

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