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Tax Guidelines for Non-Resident Indian

This page describes all the required tax compliances prescribed for a Non-resident in India including tax liabilities, deduction and penalties. A brief description of related sections and acts are also described here to educate our valuable NRI users with all essential income tax E-filing guidelines.

Section I: Income Tax Basics

Determining residential status:

The conditions to be called as an Indian resident are:

Staying in India for at least 6 months or 182 days during a financial year

Or,

Staying in India for 2 months/60 days in last financial year AND have stayed for whole year/365 days in last four years.

For Indian citizen working in abroad or a crew member of Indian Ship then the first condition will applicable to them. Also, a PIO visiting in India will be also treated as an Indian citizen under the first condition. PIO are the ones, any of his parents or Grandparents born in undivided India.

Taxation and income from abroad:

Residential status is the main cursor of Income Tax liability in India for an NRI. For a resident, their Global income is taxable in India. For NRIs, income earned within India is taxable income.

Examples of Income earned and are taxable income in India:
  • Salary received in India
  • Salary for service provided in India
  • Income from an Indian house property
  • Capital gains on transfer of Indian assets
  • Income from Fixed Deposits
  • Interest on savings bank account

Income that is earned outside India is not taxable income in India. If you earned interest on an NRE account and FCNR account is non-taxable in India. But interest earned on NRO account is taxable in India for an NRI.

Filing income tax return in India:

Any NRI who earn more than INR 2,50,000 in a Financial Year is liable to E-file income tax return in India.

NRI's need to E-file income tax returns for the following reasons:

  • To claim a refund
  • To carry forward a loss
  • The only income earned from selling an asset in a financial year where TDS has been deducted are not required to E-file income tax return for that year.

What is the last date of filing income tax return in India?

For NRIs, July 31st is the last date to E-file income tax return in India.

Do NRIs need to pay advance tax in India?

NRIs with tax liability exceeding INR 10,000 in a financial year, are required to pay advance tax. If advance tax payments are missed in a year than interest need to be paid for that as mentioned under Section 234B and Section 234C.

Section II: Taxable Income for NRIs

Income from salary

Salary income is taxable when you receive it in India or someone does on your behalf. Any NRI who receives a salary in their Indian account is liable to pay tax. These incomes will be taxed at a rate of specified tax slab limits. Income earned from services provided in India by an NRI is liable to be taxed in India. If you are an Indian citizen and your employer is Government of India, then income earned abroad is also taxable in India. However, the income of Indian Diplomats and Ambassadors are exempt from tax liability in India.

Do NRIs need to pay advance tax in India?

NRIs with tax liability exceeding INR 10,000 in a financial year, are required to pay advance tax. If advance tax payments are missed in a year than interest need to be paid for that as mentioned under Section 234B and Section 234C.

House Property Income

Income generated from house property that is situated in India is taxable here. The income tax calculation rule will be followed as same as a resident’s. Whether the property is vacant or rented out, it is liable to pay income tax on that. An NRI is also entitled to claim 30% standard deduction on house property against home loan interest payment. Also, NRIs can claim a deduction against principal repayments under section 80C which includes Stamp duty, registration charges paid to purchase a property.

Rental payments to an NRI

If an NRI receives rental payment from a tenant, then the tenant must deduct TDS at a rate of 30%. Whether the rent is received in NRI’s Indian or foreign account, it is subjected to cut TDS. Also, the person making the rental payments to an NRI need to submit a Form 15CA through online. In exceptional cases, Form 15CB need to be submitted taken from a CA which shows the details of payments, TDS rate, and TDS deduction. These needs to be showed as described in Section 195 of the Income Tax Act. This form will also show the details of DTAA (Double Tax Avoidance Agreement) if applicable, and other details of the payment made.

Form 15CA is required when the rental payment exceed INR 50,000 (single transaction) and INR 2,50,000 per financial year. Form 15CB is not required when rental payment does not exceed the above limit and lower TDS has been deducted. In the case of lower TDS deducted, a certificate is needed to received according to the section 197 or such can be done by the order of the AO. Only if the rental payment transaction falls under the Rule 37BB of the Income Tax Act, then none of the above forms is required.

Income from capital gains

Capital gain received on capital asset transfer based in India is tax liable in here and it also includes capital gains on share or security investments done in here. If NRIs sell any house property in India, then buyers are entitled to deduct a TDS at 20%. NRIs are although eligible to claim capital gain exemption against house property investments which is described under Section 54. The exemption can be also claimed against capital gains from bond investments according to section 54EC.

Income from other sources

Interest earned from fixed deposits and savings account held with any Indian banks are taxable in India. However, interest earned on NRE and FCNR accounts are non-taxable where interest earned on NRO account is 100% taxable.

Income from business and profession

Any business or profession set up controlled or set up in India falls under tax category and NRIs earning income through that are taxable in India.

Special provision for income from investment

Investments done by NRIs in any Indian assets is taxed at a rate of 20%. If the income is only income earned in an FY and TDS has been deducted, then it is not tax liable.

The included assets are:

  • Deposits with Indian banks
  • Debentures issued by a publicly-listed Indian company (not private)
  • Shares in a public or private Indian organization
  • Any security of the Central Government
  • Other assets of the Central Government as specified for this purpose in the official gazette.

Deductions under Section 80 is not allowed while calculating such investment income.

Special provision for long-term capital gains

Long-term capital gains, no deductions are allowed under Section 80 but for such income, the exemption can be claimed against the profit earned under Section 115F if profit is not reinvested back into followings:
  • NSC VI and VII issues
  • Shares in an Indian company
  • Debentures of an Indian public company
  • Central Government securities
  • Deposits with banks and Indian public companies

If the cost of the new asset is less than net consideration than capital gains are exempt proportionately from tax liability. If the new asset purchased is transferred or sold back within next 3 years from the purchase than the profit exemption will be added to the income of the year of sale / transfer.

These benefits will be available to NRI even after the person becomes a resident and will be effective until the asset converts to money. Any NRI can opt out of the special provision and in that case, his/her income will be taxed as normal Income Tax Act provision.

Section III: Deductions and Exemptions for NRIs

House Property Income

NRIs can claim deductions against Income from House Property purchased in India. Deductions are avail for NRIs as per they are availed to citizens. The deduction is also allowed for property tax and home loan interest.

Section 54 EC

The income from capital gains is reinvested into specific bonds then they are allowed for deductions

  • If the capital gain earned from the first property is not invested into another one then it can be invested into bonds for up to Rs.50 lakhs issued by National Highway Authority of India (NHAI) or Rural Electrification Corporation (REC).
  • The homeowner can invest profits into these bonds within 6 months' time. To be eligible to claim exemption, investment needs to be done before the income tax filing deadline.
  • The invested money can be converted into cash after 3 years and cannot be sold before the 3 years lapse from the selling date.

In such investments, the NRI must show relevant proof to the buyer so that no TDS get deducted on the capital gains. Excess TDS deducted can be claimed at the time of income tax return filing.

Deductions under section 80C

Most of the Section 80C deductions are available for NRIs which avails a deduction up to INR 1.5 lakhs. The deductions are available on:
  • Investments in ELSS
  • ULIPS or Unit Linked Insurance Plan
  • Life Insurance Premium Payment when the premium is less than 10% of the sum assured. The policy must be taken on NRI's name or on their spouses or any child's name (including dependent / independent, minor / major, married / unmarried child).
  • Principal Repayments on loan for the purchase of house property including stamp duty, registration fees, and other expenses.
  • Children's Tuition Fee Payment made for any two children in any Indian recognized institution for full-time education. The study and institution include play school, pre-nursery, and nursery.

Section 80D

Deductions can be claimed against health insurance and the maximum limit is up to INR 20,000 for senior citizens and up to INR 15,000 for self, spouse and dependent children. Deductions can be claimed also against policy taken for parents and an INR 20,000 deductions will be allowed if they are a senior citizen. So, a maximum of INR 40,000 can be claimed under this section including an INR 5,000 deduction for preventive health check-ups.

Section 80E

Deductions can be claimed against education loan payment which has been taken for higher education of self or spouse or children or for a student for whom the NRI is a legal guardian. Such deductions have no limit and are available for a maximum of 8 years or till the interest is paid, whichever is earlier. Deduction for principal repayment of the loan is not available for the NRIs.

Section 80G

Deductions can be claimed against donation made for social causes by an NRI.

Section 80TTA

Deductions can be claimed against the income earned from interest on a savings account and the maximum limit is up to INR 10,000. This is allowed only on savings account deposits held with an Indian bank or co-operative society or post office and is available starting FY 2012-13.

Section IV: Deductions not allowed to NRIs

  • Some Investments under Section 80C:
    • Investment in PPFs.
    • Investments in NSCs
    • 5 Year Deposit Scheme held with Post Office
    • Senior Citizen Savings Scheme.
  • Investment under RGESS under section 80CCG
  • Deduction for the differently-abled under section 80DD
  • Deduction for the differently-abled under section 80DDB
  • Deduction for the differently-abled under section 80U

Section V: To Avoid double taxation

To avoid double taxation, NRIs can seek relief against the Double Tax Avoidance Agreement (DTAA) between the two countries. Doing such will make them pay tax only either in the home country or in India.

Relief can be claimed by two methods:

  • Exemption method: where income is taxed only in one country and is exempted in another
  • Tax credit method: where the relief can be claimed in the country of residence.

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