Introduction

Taxes play a crucial role in supporting the Indian economy, and NRIs (Non-Resident Indians) are subject to specific rules under the Indian Income Tax Act, 1961. This article explores the tax regulations and obligations for NRIs in India, including residential status, taxable income, deductions, exemptions, and more.

Determining Residential Status for Tax Purposes

Your tax liability as an NRI is primarily determined by your residential status. Residential status is classified into:

1. Resident

   • Stay in India for 182 days or more during the financial year, or
   • Stay for 60 days in the financial year and 365 days or more in the preceding 4 years.
   • Note: Indian citizens working abroad or crew members of Indian ships qualify as residents only if they stay for 182 days or more.

2. Non-Resident Indian (NRI)

   • If none of the above conditions are met, you are considered an NRI.

3. Resident but Not Ordinarily Resident (RNOR)

   • You were a non-resident in 9 of the 10 preceding years or stayed in India for 729 days or fewer in the 7 preceding years.
   • Amendments by Finance Act 2020: Individuals with total Indian income exceeding ₹15 lakh and specific stay criteria may also qualify as RNOR.

Taxable Income for NRIs

What Income is Taxable for NRIs?

NRIs are taxed on:

• Income earned or accrued in India.
• Income received in India.

Key Taxable Income Categories

1. Salary Income

   • Taxable if services are rendered in India.
   • Example: An NRI working in India for an Indian company will have their salary taxed in India.

2. Income from House Property

   • Rental income from properties in India is taxable.
   • NRIs can claim a 30% standard deduction, property taxes, and home loan interest deductions.
   • Example: If an NRI rents out property in India, tenants must deduct TDS at 30%.

3. Income from Capital Gains

   • Capital gains from the sale of property, shares, or other assets in India are taxable.
   • Long-term capital gains (LTCG): Taxed at 20%.
   • Exemptions under Sections 54, 54EC, and 54F: Available if reinvested in eligible assets like property or bonds.

4. Income from Other Sources

   • Interest from NRO accounts and other Indian investments is taxable.
   • Exemptions: Interest from NRE and FCNR accounts is tax-free.

5. Investment Income

   • Income from Indian shares, deposits, or debentures is taxed at 20%.

Deductions and Exemptions for NRIs

Available Deductions

1. Section 80C

   • Deductions up to ₹1.5 lakh for investments like life insurance premiums, tuition fees, and principal repayment on home loans.

2. Section 80D

   • Health insurance premiums:
     • ₹25,000 for self, spouse, and children.
     • ₹50,000 for senior citizen parents.

3. Section 80E

   • Interest on education loans with no cap on the amount.

4. Section 80G

   • Donations to eligible charitable organizations.

5. Section 80TTA

   • Deduction of up to ₹10,000 on interest from savings accounts.

Unavailable Deductions

NRIs cannot claim:

• PPF (Public Provident Fund).
• NSC (National Savings Certificates).
• Section 80DD and 80DDB (for dependents with disabilities).

Special Provisions for NRIs

TDS on Property Sale

• Long-term capital gains attract TDS at 20%.
• NRIs can claim a refund for excess TDS via tax returns.

Deemed Residency

• Indian citizens earning over ₹15 lakh from Indian sources and not taxed elsewhere will be deemed residents and classified as RNOR.

Surcharge Rates

• 10%: Income above ₹50 lakh but ≤ ₹1 crore.
• 15%: Income above ₹1 crore but ≤ ₹2 crore.
• 25%: Income above ₹2 crore but ≤ ₹5 crore.
• 37%: Income above ₹5 crore.
• Note: Surcharge is capped at 25% under the new tax regime.

Tax Filing and Compliance

Who Needs to File Income Tax Returns?

NRIs must file returns if their income exceeds ₹2,50,000 in a financial year.

Advance Tax

• Required if tax liability exceeds ₹10,000.
• Failure to pay leads to interest under Section 234B and 234C.

Due Date for Filing Returns

• Typically July 31st of the assessment year, subject to government extensions.

FAQs on NRI Taxation

1. What income is taxable for NRIs?
   Only income earned or accrued in India.

2. Are NRIs required to file returns?
   Yes, if their Indian income exceeds ₹2,50,000.

3. Can NRIs claim deductions?
   Yes, under Sections 80C, 80D, 80E, etc.

4. What is the impact of the Finance Act 2020?
   Changes include deemed residency and stricter RNOR classification for high-income individuals.

5. Is foreign income taxable for NRIs?
   No, unless they are classified as residents or RNOR.

By understanding these provisions, NRIs can effectively manage their tax obligations in India, leveraging deductions, exemptions, and compliance measures to optimize their tax liability.