In this write-up, we would be discussing NRI taxation in India. NRIs are a major contributor to Indian tax revenue over the years. Unlike Residents, whose global incomes are taxable in India, Non Residents are taxable in India only in case of any income earned or received in India.
Accordingly, the first step in determining NRI Tax in India is determining the residential status of the NRI.
Determining the residential status for NRI:
An individual is considered a resident of India for a particular financial year in the following cases-
- His period of stay in India is for 182 days or more in a financial year OR
- During the last four years, his stay in India is for 365 days or more and 60 days or more during the relevant financial year.
Further, from FY 2020-21, the concept of deemed resident has also been introduced in India. Accordingly, any person being a citizen of India who stays outside India and is not liable to tax in any other country because of his domicile or residence or other criteria, and comes for a visit to India and his total income excluding income from foreign sources exceed Rs 15 lac, will be deemed to be resident in India.
Which incomes of NRIs are subject to tax in India?
Generally, the following incomes are subject to NRI Tax in India
- Salaries received in India.
- Salary for any services provided within Indian Territory.
- Interests accrued on the savings bank account.
- Interest earned on NRO account is liable for tax in India
- Income earned through fixed deposits.
- Capital gains on transferring of assets situated within India.
- Income accrued as rent or lease from a house or property within India.
- Income from a profession or business that has been set up in India by the NRI.
- Investment income made on certain assets in India.
Which incomes of NRIs are not subject to tax in India?
Generally, the following incomes are not subject to NRI Tax in India
- Any income earned outside the Indian Territory.
- Interest earned on FCNR account.
- Interest accrued on NRE Account.
NRI Income Tax Return
The requirement to File Income Tax Return by NRI
NRIs must file an Income-tax return in India if their total income exceeds the maximum amount not chargeable to tax in India or when their excess TDS has been deducted. Then, he has to claim a refund of such excess tax deducted.
Further, NRIs are also required to pay advance taxes if their estimated tax liability during the year exceeds Rs 10,000.
Any default in payments above would lead to interest under Section 234B and Section 234C. The last date of filing the NRI Income Tax Return in India is the 31st of July of every financial year.
Avoiding Double Taxation in case of NRI:
An NRI can avoid double taxation by seeking a Double Tax Avoidance Agreement (DTAA) between two countries. The DTAA provides two methods through which tax relief can be claimed. These are as follows-
- Tax credit method: In this, both the countries charge taxes, but the NRI can only claim the tax relief in the resident country.
- Exemption method: The NRI has to pay taxes in only one country and be exempted from taxes in another.