Income Tax for NRI

A guide to tax implications for NRIs

1. Who is a Resident, Non-resident & Resident but not Ordinarily Resident

'Non-resident Indian' is an individual who is a citizen of India or a person of Indian origin and who is not a resident of India. Thus, in order to determine whether an Individual is a non-resident Indian or not, his residential status is required to be determined under Section 6. As per section 6 of the Income-tax Act, an individual is said to be non-resident in India if he is not a resident in India and an individual is deemed to be resident in India in any previous year if he satisfies any of the following conditions:

a) If he is in India for a period of 182 days or more during the previous year (Financial Year i.e. to say April 1 2019 to March 31, 2020; or

b) If he is in India for a period of 60 days or more during the previous year (Financial Year) and 365 days or more during 4 years immediately preceding the previous year (Financial Year).

However, condition No. 2 does not apply where a an individual being citizen of India or a person of Indian origin, who being outside India, comes on a visit to India during the previous year.

A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided India.

In case you are an Indian Citizen and you leave India for employment outside of India or as a member of the crew on an Indian ship, in other words if you take up a job outside India the 60 days minimum period will be increased to 182 days.

HOW TO CALCULATE THE DAYS IN THE CASE OF A CREW OF A SHIP

In case of a citizen of India and a member of the crew of a ship, the period or periods of stay in India shall, in respect of an eligible voyage shall be computed as follows:

The numbers of days of stay in India for such person shall not include the days – from the start date of the Continuous Discharge Certificate and ending on the end date of this document, as signed off on the Discharge certificate. Continuous Discharge Certificate must be as per the Merchant Shipping (Continuous Discharge Certificate-cum-seafarer’s Identity Document) Rules, 2001 made under the merchant shipping act, 1958 This Continuous Discharge Certificate must be for a voyage, which originates from any port in India and has its destination at any port outside India OR which originates from any port outside India and has its destination at any port in India. [Notification No. 70/2015/ F.No.142 /12/2015-TPL].

The above rule is applicable from 1 April 2015. The rule is applicable for finding out residential status of Indian citizens as crew on Indian ships starting from the financial year 2015-16.

Such crew is considered as Non Resident Indian (NRI) for income tax purposes, when they have spent less than 182 days in India. While calculating this stay of 182 days, the entire period mentioned in the Continuous Discharge Document shall be excluded even though the ship may have been on Indian coastal waters in its journey. Earlier, the number of days outside India were only calculated from the date the Indian ship left Indian coastal waters.

In Case of Sailing on Foreign ships: Indian crew serving on foreign ships for 182 days or more are treated as non-resident in India, irrespective of where the ship trades (including Indian waters).

In case of sailing on Indian ships : A seafarer serving on Indian ships outside India for a period of 182 days or more in a year is considered to be a non-resident. However, the time spent by a ship in Indian territorial waters is considered as period of service in India, according to tax rules framed in 1990. The number of days outside India of Indian crew working on such Indian ships gets counted only from the date when the Indian ship crosses the coastal boundaries of India.

This increase in days is also applicable to you if you are an India citizen or a PIO and you live outside India and you come on a visit to India. The intention behind relaxing the minimum number of days to 182 is to protect your taxability (so you don’t get taxed as a Resident Indian) in case you decide to visit India for an extended stay to visit family or meet other obligations and end up staying more than 2 months.

Resident but Not Ordinarily Resident (RNOR)

Besides Resident & Non Resident Indian there is a third category – That of a Resident But Not Ordinarily Resident- after having spent many years abroad if you have recently moved back to India, you may fall in the category of Resident but not Ordinarily Resident (RNOR).

Who is a RNOR?

You will be considered Resident but Not Ordinarily Resident in a year – if you satisfy one of the two conditions for a Resident (mentioned above) AND-

If you have been an NRI in 9 out of 10 financial years preceding the year.

OR

You have during the 7 financial years preceding the year been in India for a period of 729 days or less.

What is your taxable income for the purpose of Indian Tax Laws: If you are a NON RESIDENT INDIAN, simply put –

Any income that is ‘earned’ in India is taxable for you in India.

Your Income outside of India is not taxable in India.

In case of Salary of a non-resident seafarer for services outside India on a foreign ship will not be included in the total taxable income of the seafarer, even though such salary is credited in the NRE account of the seafarer with an Indian bank.For instance seafarer rendered services in Europe and spent less than 182 days in India.The company credited his salary in NRE account with Indian Bank.This income will not be included in the total taxable income of the seafarer.

2. How is NRI taxed in India

An NRI’s income taxes in India will depend residential status of taxpayer to determine taxability of income earned by such taxpayer.

Resident

In case of resident taxpayer all his income would be taxable in India, irrespective of the fact that income is earned or has accrued to taxpayer outside India.

Examples: Salary received in India or salary for service provided in India, income from a house property situated in India, capital gains on transfer of asset situated in India, income from fixed deposits or interest on savings bank account are all examples of income earned or accrued in India. Non-Resident

However, in case of non-resident all income which accrues or arises outside India would not be taxable in India.

Interest earned on an NRE account and FCNR account is tax-free. Interest on NRO account is taxable for an NRI.

Nature of income Taxability in the hands of Non-resident

Income which accrues or arises in India Taxed

Income which is deemed to accrue or arise in India Taxed

Income which is received in India Taxed

Income which is deemed to be received in India Taxed

Income accruing outside India from a business controlled from India or from a profession set up in India

Not Taxed

Income other than above (i.e.,income which has no relation with India)

Not Taxed

Resident but Not Ordinarily Resident (RNOR)

Interestingly, in case you have just returned back to India – you are allowed to keep your RNOR status for up to 3 financial years post your return back to India. That could benefit you in a big way – since your taxation will be very much in line with that of an NRI and therefore income that you may earn outside of India (while you may have returned back) will continue to be not taxed in India. Therefore like an NRI –

Any income that is ‘earned’ in India is taxable for you in India Your income outside of India is not taxable in India

And you can continue this status for a period of 3 years. However, once you have attained the status of a Resident, all of your income within and outside India will be taxable in India, barring any concessions that may be available under the Double Taxation Avoidance Agreement between India and the country from where your overseas income has arisen.

What does the term “Earned” in India mean?

– Any income received in India or the law deems it to be received in India by you or on your behalf.

– Any income that accrues or arises in India or income that the law believes accrues or arises in India.

What does ‘Accrues in India’ mean?

This is laid out in Section 9 of the Income Tax Act (note that this applies to everyone while considering the income that accrues or arises to them irrespective of what their residential status is).

If your answer to any of these is a YES the law will consider these incomes to have accrued in India:-

1. Income from a business connection in India. 2. Income from any property, asset or source of income in India. 3. Capital gain on the transfer of a capital asset situated in India. 4. Income from salary if the services are rendered in India. 5. Income from salary which is payable to you by the Government of India for services

rendered outside of India when you are an Indian citizen. 6. Dividend paid by an Indian company even though this may have been paid outside India.

7. Interest, royalty or technical fees received from the Central or the State Government or from specified persons in certain circumstances.

a. Am I Required to File My Income Tax Return in India?

NRI or not, any individual whose income exceeds Rs.2,50,000 is required to file an income tax return in India

Did you know?

NRIs must file their returns when they:

Want to claim a refund

Have a loss that they want to carry forward

Case Study:

Anand lives and works in the USA. He checked his Form 26AS online and found out that a TDS entry of Rs 20,000 is mentioned. This TDS had been deducted at 30% on interest earned by him in his NRO account. Anand has no other income in India.

Does Anand have to pay any tax in India, and is he required to file an income tax return? Whether your income will be taxed in India or not, depends upon your residential status. First, let’s find out Anand’s residential status. He is an Indian citizen and has gone to the US for his job – he will be a resident if he spends 182 days or more in India. Anand left India on 3rd July 2017 and came back to India on 15th March 2018. Therefore in the financial year that begins on 1st April 2017 and ends on 31st March 2018, Anand has spent less than 182 days in India. Since he is an Indian citizen on employment abroad, to qualify as a resident he must spend 182 days or more in India. Therefore, hAnand is an NRI for the purpose of income tax in India. For Anand, only his income which is earned or accrued in India shall be taxable in India. His income in the USA is not taxable in India since he is an NRI. Interest earned in India is taxable for an NRI. (Do note that interest on NRO account is taxable whereas interest earned on NRE account is exempt from tax). Anand needs to add up all the income he has earned in India. The interest earned on the NRO account of Rs 70,000 is Anand’s only income. For FY 2017-18, the minimum income which is exempt from tax is Rs 2.5 lakhs. Anand’s total income in India is less than the minimum exempt amount, and therefore he does not have to pay any tax on it. In fact, since no tax is payable by him, he must claim a refund of the TDS deducted on her interest income.

A refund can only be claimed by filing an income tax return for that financial year.

b. When is the Last Date to File Income T ax Return in India?

July 31st is the last date to file income tax return in India for NRIs.

c. Do NRIs Have to Pay Advance Tax?

If your tax liability exceeds Rs 10,000 in a financial year, you are required to pay advance tax. Interest under Section 234B and Section 234C is applicable when you don’t pay your advance tax.

3. Taxable Income for an NRI

Your salary income is taxable when you receive your salary in India or someone does on your behalf. Therefore, if you are an NRI and you receive your salary directly to an Indian account it will be subject to Indian tax laws. This income is taxed at the slab rate you belong to.

a. Income from Salary

Income from salary will be considered to arise in India if your services are rendered in India. So even though you may be an NRI, but if your salary is paid towards services provided by you in India, it shall be taxed in India immaterial of where you are receiving the income. In case your employer is Government of India and you are the citizen of India, income from salary, if your service is rendered outside India is also taxed in India. Note that income of Diplomats, Ambassadors are exempt from tax. Example: Ajay was working in China on a project from an Indian company for a period of 3 years. Ajay needed the salary in India to take care of the needs of his family and make payments towards a housing loan. However, since salary received by Ajay in India would have been taxed as per Indian laws, Ajay decided to receive it in China.

b. Income from House Property

Income from a property which is situated in India is taxable for an NRI. The calculation of such income shall be in the same manner as for a resident. This property may be rented out or lying vacant. An NRI is allowed to claim a standard deduction of 30%, deduct property taxes, and take benefit of an interest deduction if there is a home loan. The NRI is also allowed a deduction for principal repayment under Section 80C. Stamp duty and registration charges paid on the purchase of a property can also be claimed under Section 80C. Income from house property is taxed at slab rates as applicable.

Example: Nandini owns a house property in Goa and has rented it out while she lives in Bangkok. She has set up the rent payments to be received directly in her bank account in Bangkok. Nandini’s income from this house which is in India shall be taxable in India.

Case Study Aditya has let out his apartment in Mumbai for Rs. 35,000 per month. It's time to file his tax returns for this year and for that he needs to determine how much he owes the I-T Department.

These are the other expenses related to the house during the year:

He paid Rs.25,000 in property taxes in November and spent Rs.8,000 in repairs and Rs.30,000 in electricity bills. He is also paying an interest of Rs.2,20,000 on the money borrowed to build the house. Since the property is let out, the entire interest on the home loan can be claimed as a deduction.

Aditya needs to find out the gross annual value of the property to calculate income from house property. For a rented house, it is the annual rent collected. Rent collected must be higher than or equal to the reasonable rent of the property as determined by the municipality. In Aditya's case, the municipality has determined the reasonable rent to be Rs. 32,000. Therefore, the gross annual value is Rs. 4,20,000.

Subtract property tax payment to arrive at net annual value. Section 24 of the Income Tax Act allows Aditya to claim a standard deduction of 30% on the net annual value. Aditya's home loan interest is also fully deductible.

This is how his income from house property is calculated

Gross Annual Value 4,20,000

Less: Property Taxes -25,000

Net annual value 3,95,000

Less: standard deduction at 30% -1,18,500

Less: Interest on money borrowed -2,20,000

Income from house property 56,500

Note that Aditya's expenses on repairs and electricity are not allowed to be deducted. Also note that if Aditya was getting rental income from more than one house property, he would have to calculate for each one of them individually in the same manner as above.

c. Rental Payments to an NRI

A tenant who pays rent to an NRI owner must remember to 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. Example: Maria pays a monthly rent of Rs30,000 to her NRI landlord. She must deduct 30% TDS or Rs 9,000 before transferring the money to the landlord’s account. Maria must also get a Form 15CA prepared and submit it online to the Income Tax Department. A person making a remittance (a payment) to a Non-Resident Indian has to submit Form 15CA. This form has to be submitted online. In some cases, a certificate from a chartered accountant in Form 15CB is required before uploading Form 15CA online. In Form 15CB, a CA certifies details of the payment, TDS rate, and TDS deduction as per Section 195 of the Income Tax Act, if any DTAA (Double Tax Avoidance Agreement) is applicable, and other details of nature and purpose of the remittance. Form 15CB is not required when: i. Remittance does not exceed Rs 5,00,000 (in total in a financial year). Only Form 15CA has to be submitted in this case.

ii. If lower TDS has to be deducted and a certificate is received under Section 197 for it or lower TDS has to be deducted by order of the AO.

iii. Neither is required if the transaction falls under Rule 37BB of the Income Tax Act, where it lists 28 items. Check out the entire list here.

In all other cases, if there is a remittance outside India, the person who is making the remittance will take a CA’s certificate in Form 15CB and after receiving the certificate submit Form 15CA to the government online.

d. Income from Other Sources

Interest income from fixed deposits and savings accounts held in Indian bank accounts is taxable in India. Interest on NRE and FCNR account is tax-free. Interest on NRO account is fully taxable.

e. Income from Business and Profession

Any income earned by an NRI from a business controlled or set up in India is taxable to the NRI.

f. Income from Capital Gains

Any capital gain on transfer of capital asset which is situated in India shall be taxable in India. Capital gains on investments in India in shares, securities shall also be taxable in India. If you sell a house property and have a long-term capital gain, the buyer shall deduct TDS at 20%. However, you are allowed to claim capital gains exemption by investing in a house property as per Section 54 or investing in capital gain bonds as per Section 54EC.

g. Special Provision Related to Investment Income

When an NRI invests in certain Indian assets, he is taxed at 20%. If the special investment income is the only income the NRI has during the financial year, and TDS has been deducted on that, then such an NRI is not required to file an income tax return.

h. What are the Investments that Qualify for Special Treatment?

Income derived from the following Indian assets acquired in foreign currency: i. Shares in a public or private Indian company

ii. Debentures issued by a publicly-listed Indian company (not private)

iii. Deposits with banks and public companies

iv. Any security of the central government

v. Other assets of the central government as specified for this purpose in the official gazette

No deduction under Section 80 is allowed while calculating investment income.

i. Special Provision Related to Long-Term Capital Gains

For long-term capital gains made from the sale of transfer of these foreign assets, there is no benefit of indexation and no deductions allowed under Section 80. But you can avail an exemption on the profit under Section 115 F when the profit is reinvested back into: i. Shares in an Indian company

ii. Debentures of an Indian public company

iii. Deposits with banks and Indian public companies

iv. Central Government securities

v. NSC VI and VII issues

In this case, capital gains are exempt proportionately if the cost of the new asset is less than net consideration. Remember, if the new asset purchased is transferred or sold back within 3 years, then the profit exempted will be added to the income in the year of sale/transfer. The benefits above may be available to the NRI even when he/she becomes a resident – until such an asset is converted to money, and upon submission of a declaration for the application of the special provisions to the assessing officer by the NRI. The NRI may choose to opt out of these special

provisions and in that case the income (investment income and LTCG) will be charged to tax under the usual provisions of the Income Tax Act.

4. Deductions and Exemptions for NRIs

Similar to residents, NRIs are also entitled to claim various deductions and exemptions from their total income. These have been discussed here:

a. Deductions Under Section 80C

Most of the deductions under Section 80 are also available to NRIs. For FY 2017-18, a maximum deduction of up to Rs 1.5 lakhs is allowed under Section 80C from gross total income for an individual.

b. Of the Deductions Under Section 80C, those allowed to NRIs are:

i. Life insurance premium payment: The policy must be in the NRI’s name or in the name of their spouse or any child’s name (child may be dependent/independent, minor/major, or married/unmarried). The premium must be less than 10% of sum assured.

ii. Children’s tuition fee payment: Tuition fees paid to any school, college, university or other educational institution situated within India for the purpose of full-time education of any two children (including payments for play school, pre-nursery and nursery).

iii. Principal repayments on loan for the purchase of a house property: Deduction is allowed for repayment of loan taken for buying or constructing residential house property. Also allowed for stamp duty, registration fees and other expenses for purpose of transfer of such property to the NRI.

iv. Unit-linked insurance plan (ULIPS): ULIPS is sold with life insurance cover for deduction under Section 80C. Includes contribution to unit-linked insurance plan of LIC mutual fund e.g. Dhanraksha 1989 and contribution to other units -linked insurance plan of UTI.

v. Investments in ELSS: ELSS has been the most preferred option in recent years as it allows you to claim a deduction under Section 80C upto Rs 1.5 lakhs, it offers the EEE (Exempt-Exempt-Exempt) benefit to taxpayers and simultaneously offers an excellent opportunity to earn as these funds invest primarily in the equity market in a diversified manner.

5. Other Allowable Deductions

Besides the deduction that an NRI can claim under Section 80C, he is also eligible to claim various other deductions under the Income tax laws which have been discussed here:

a. Deduction from House Property Income for NRIs

NRIs can claim all the deductions available to a resident from income from house property for a house purchased in India. Deduction towards property tax paid and interest on home loan deduction is also allowed. You can read about house property income in detail here.

b. Deduction under Section 80D

NRIs are allowed to claim a deduction for premium paid for health insurance. This deduction is available up to Rs 30,000 ( increased to Rs 50,000 effective 1 April 2018) for senior citizens and up to Rs 25,000 in other cases for insurance of self, spouse, and dependent children. Additionally, an NRI can also claim a deduction for insurance of parents (father or mother or both) up to Rs30,000 (raised to Rs 50,000 effective 1 April 2018) if their parents are senior citizens, and Rs 25,000 if the parents are not senior citizens. Beginning FY 2012-13, within the existing limit a deduction of up to Rs 5,000 for preventive health check-ups are also available.

c. Deduction under Section 80E

Under this Section, NRIs can claim a deduction of interest paid on an education loan. This loan may have been taken for higher education for the NRI, or NRI’s spouse or children or for a student for whom the NRI is a legal guardian. There is no limit on the amount which can be claimed as a deduction under this Section. The deduction is available for a maximum of 8 years or till the interest is paid, whichever is earlier. The deduction is not available on the principal repayment of the loan.

d. Deduction under Section 80G

NRIs are allowed to claim a deduction for donations for social causes under Section 80G. Here are all the donations which are eligible under Section 80G.

e. Deduction under Section 80TTA

Non-resident Indians can claim a deduction on income from interest on savings bank account up to a maximum of Rs 10,000 like resident Indians. This is allowed on deposits in savings account (not time deposits) with a bank, co-operative society or post office and is available starting FY 2012-13.

f. Deductions not Allowed to NRIs

Some Investments under Section 80C:

i. Investment in PPF is not allowed (NRIs are not allowed to open new PPF accounts, however, PPF accounts which are opened while they are a resident are allowed to be maintained)

ii. Investments in NSCs

iii. Post office 5-year deposit scheme

iv. Senior citizen savings scheme

g. Investment under RGESS (Section 80CCG)

Deduction under Section 80CCG or Rajiv Gandhi Equity Savings Scheme was introduced in effective assessment year 2013-14. The main purpose behind this deduction was to increase retail investor participation in equity markets. Upon satisfaction of certain conditions the deduction allowed is lower of 50% of the amount invested in equity shares or Rs 25,000. This deduction is not available to NRIs.

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h. Deduction for the Differently-Abled under Section 80DD

Deduction under this Section is allowed for maintenance including medical treatment of a handicapped dependent (a person with a disability as defined in this Section) is not available to NRIs.

i. Deduction for the Differently-Abled under Section 80DDB

Deduction under this Section towards medical treatment for a dependent who is disabled (as certified by a prescribed specialist) is available only to residents.

j. Deduction for the Differently-Abled under Section 80U

Deduction for disability where the taxpayer himself suffers from a disability as defined in the Section is allowed only to resident Indians.

k. Exemption on Sale of Property for an NRI

Long-term capital gains (when the property is held for more than 3 years) is taxed at 20%. Do note that long-term capital gains earned by NRIs are subject to a TDS of 20%. NRIs are allowed to claim exemptions under Section 54, Section 54 EC, and Section 54F on long-term capital gains. Therefore, an NRI can take benefit of the exemptions from capital gains at the time of filing a return and claim a refund of TDS deducted on Capital Gains. Exemption under Section 54 is available on long-term capital gains on sale of a house property. Exemption under Section 54F is available on sale of any asset other than a house property. Read more about Section 54.

Exemption is also available under Section 54EC when capital gains from sale of the first property is reinvested into specific bonds.

i. If you are not very keen to reinvest your profit from sale of your first property into another one, then you can invest them in bonds for up to Rs.50 lakhs issued by National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC).

ii. The homeowner has 6 months’ time to invest the profit in these bonds, although to be able to claim this exemption, you will have to invest before the tax filing deadline. iii. The money invested can be redeemed after 3 years, but cannot be sold before the lapse of 3 years from the date of sale. With effect from the FY 2018-2019, the period of 3 years has been increased to 5 years. iv. With effect from FY 2018-19, the exemption under section 54EC has been restricted to the capital gain arising from the transfer of long term capital assets being land and building or both. Earlier, the exemption was available on transfer on any capital assets. The NRI must make these investments and show relevant proof to the buyer to get no TDS deducted on the capital gains. The NRI can also claim excess TDS deducted at the time of return filing and claim a refund.

l. How are You Taxed When You are a…

i. Resident Individual on a Temporary Foreign Assignment

Rahul worked out of Singapore on a temporary assignment for 4 months and earned in Singaporean Dollars during that time. He got this income credited to a bank account here in India. He has returned back home now. How should he file his income tax return? Rahul’s taxes for this year will depend on his residential status. Since Rahul has not been outside of India for more than 182 days, he will be considered a resident. He will be required to file his income taxes in India this year. This will also include his salary earned during the foreign assignment in Singapore. If the assignment extends to more than 182 days, Rahul’s residential status will change and he will be required to pay taxes only on the Indian income earned thus far. Here, note that Rahul’s foreign income credited to an Indian bank account is taxable in India.

ii. Resident Individual recently moved abroad

Prashant moves to the US on a new assignment. He gets his US income credited to an NRE account in India. He continues with his FD investments and has some money put away in a savings account in India. He just received Form 16 from his Indian employer. Should he file his returns this year in India? NRI or not, every individual must file a tax return if their income exceeds Rs 2,50,000. But note that NRIs are only taxed for income earned/collected in India. So, Rahul will pay taxes on income earned while in India, and income accrued from FDs and savings account.

Prashant’s income from India

Income from Indian employer Rs 3,00,000

Interest income from FDs Rs 25,000

Bank account savings interest Rs 4,500

Gross total income Rs 3,29,500

Deductions

Section 80C – PPF investments Rs 20,000

Section 80TTA exemption Rs 4,500

Taxable income Rs 3,05,000

Tax slab at 10% Rs 5,500

Cess at 3% Rs 165

TDS deducted by employer Rs 4,000

TDS deducted by bank Rs 4,500

Tax Refund Rs 2835

iii. Living in a Foreign Country

It’s been 3 years since Arjun moved to the US. He is paid in US dollars. He has his money invested in a savings account and FDs in India. He has bought an apartment and gave it on rent for Rs.35,000 per month. He gifts his parents a car and transfers Rs.10,000 every month to their account to help with their household expenses during the year. He also transfers Rs 20,000 in his father’s account to meet the cost of the insurance policy he has purchased for his parents.

Rental Income Rs 4,20,000

Less: Standard 30% deduction under Section 24 Rs 1,26,000

Income from house property Rs 2,94,000

Income from FDs and bank account Rs 30,000

Gross total income Rs 3,24,000

Deduction under Section 80D Rs 20,000

Taxable income Rs 3,04,000

Arjun’s gift to his father and money transfer of Rs 10,000 to his mother are exempt from tax. Regarding the insurance expenses on his parents, Rahul can claim a deduction under Section 80D of Rs 20,000, since his father is over 65 years of age. He will be required to file a tax return in India as his gross income exceeds Rs 2,50,000.

iv. NRI Recently Moved Back to India

Returning NRIs assume RNOR (Resident, Non-Ordinary Resident) status when: a. You have been an NRI in 9 of the 10 financial years preceding the year of your return b. You have lived in India for 2 years or less (729 days or less) in the last 7 financial years The IT Department allows RNORs to continue to enjoy exemptions available to NRIs for a period of 2 years after their return. Therefore, deposits held in foreign currency, which are exempt for an NRI, shall be exempt to returning NRIs for 2 years. After these 2 years, returning NRIs are treated as resident individuals.

v. A resident with Global Income

If you are a resident Indian, your global income is taxable in India. This income may have been earned or received outside – but it shall be taxed in India. In case this income is also taxable in another country, you can take benefit of DTAA (Double Tax Avoidance Agreement).

CASE STUDY:

Shreya returned to India in 2010 after living in London for more than 5 years. The French company she worked for has retained her as a consultant and sends her fees in pounds. Her salary is credited to a bank account there, and Shreya pays tax on it in the UK. Does Shreya Have to Pay Tax on this Income or Include it in Her Income Tax Return in India?

Shreya is a resident of India. Taxability of income in India depends upon residential status. A resident has to pay tax on their global income. The resident must disclose all the income earned by them from all sources and all countries in their income tax return and pay tax on it in India. (An NRI pays tax only on income earned or accrued in India). Therefore, all of Shreya’s income, including the fee that she earns in foreign currency will be taxable in India. Her income in pounds shall be converted to Indian rupees for the purpose of income tax calculation and added to her total income, which will be taxed at slab rates prescribed by the tax department. If Shreya has already paid tax on the foreign income in the UK, she can claim the benefit under DTAA. Based on the relevant provisions of the DTAA between the two countries, Shreya will be saved from getting taxed twice.

If you are a resident and have earned any income from abroad, remember to disclose it in your income tax return.

6. How can NRIs Avoid Double Taxation?

NRIs can avoid double taxation (meaning: getting taxed on the same income twice in the country of residence and India) by seeking relief from DTAA between the two countries. Under DTAA, there are two methods to claim tax relief – exemption method and tax credit method. By exemption method, NRIs are taxed in only one country and exempted in another. In tax credit method, where the income is taxed in both countries, tax relief can be claimed in the country of residence.

7. Special provisions relating to certain incomes of Non Resident Indian

Section - 115C : Definitions Section - 115D : Special provision for computation of total income of non-residents Section - 115E : Tax on investment income and long-term capital gains Section - 115F : Capital gains on transfer of foreign exchange assets not to be charged in

certain cases Section - 115G : Return of income not to be filed in certain cases Section - 115H : Benefit under Chapter to be available in certain cases even after the

assessee becomes resident Section - 115-I : Chapter not to apply if the assessee so chooses

8. Permanent Account Number

Every person who is required to file a return of income or intends to enter into an economic or financial transaction where quoting of PAN is mandatory must have a PAN.

Guidelines for PAN

9. Frequently Asked Questions

When are you considered as a non-resident Indian (NRI)?

A person who is not a resident of India is considered to be a non-resident of India (NRI). You are a resident if your stay in India for a given financial year is : 182 days or more or 60 days or more and 365 days or more in the 4 immediately preceding previous years. In case you do not satisfy either of the above conditions, you will be considered an NRI.

I am an NRI. I have rental income from a flat that I own in India. I am employed in the US and I receive salary income in the US. What income should I offer in India?

Since you are an NRI, only the income that accrues to you in India will be taxable. You would not be taxed on your global income. Accordingly, you will have to pay taxes in India on the rental income from the flat situated in India. However, you will not be liable to pay any taxes on the salary income that you receive from the USA.

When should an NRI file his return of income in India?

An NRI, like any other individual taxpayer, must file his return of income in India if his gross total income received in India exceeds Rs 2.5 lakhs for any given financial year. Further, the due date for filing return for an NRI i also 31 July of the assessment year.

I am an NRI aged 65 years. Do I have to file a return even if my gross total income is Rs 2.8 lakhs during a year from India?

The basic exemption of Rs 3 lakhs and Rs 5 lakhs is available only for resident senior citizens and resident super senior citizens. Hence, as an NRI, even if you are a senior citizen, the moment your income in India exceeds Rs 2.5 lakhs, you will be liable to file your return of income in India.

Should taxes be deducted when payments are being made to NRIs?

Specified payments in the nature of rent, professional or technical fees etc made to an NRI requires tax deduction at source by the individual making the payment. The individual must obtain a TAN for himself in order to deduct taxes at source. Further, Form 15CA (to be filed by the person making the payment) and Form 15CB (to be obtained from a Chartered Accountant) are also required for making payments to non-residents. Read our detailed article on Form 15CA and 15CB for further clarity.

Is an NRI taxable on the income he receives in India, in his country of residence? What is the role of the Double Taxation Avoidance Agreements (DTAA) here?

An NRI in receipt of income in India is taxable in India on such income i.e. India as a source state has the right to tax such income. However, the country of which such NRI is a resident, will also have a right to tax such income as it is the residence state. In the process, the NRI will end up getting taxed twice on the same income. To overcome this, India has entered into DTAAs with various countries which help eliminate such double taxation by allowing the taxpayer to claim credit for foreign taxes paid while filing their return of income in the home country.

I am an NRI. Will I be subject to capital gains tax if I sell a flat that I own in India?

Yes. You will be liable for capital gains tax in India upon sale of your flat. Further, the purchaser himself must deduct taxes on the quantum of gains you make. The rate of tax deduction for a long term asset would be 20% while taxes at slab rates would be deducted at source if the asset is a short term asset.