What are the Deductions and Exemptions available to NRI under Income Tax?

by EzyBiz India Tax & Accounting Consulting Firm

NRIs are a major contributor to Indian GDP in terms of bringing foreign remittance to India every year. They are also the brand ambassador of India. Tax treatment of NRIs in India are at par with that of Resident with some differences.

In this write-up, we would be discussing the NRI tax in India.

While determining NRI Tax in India, the first question which comes to mind of every NRI is about the treatment of their foreign income, i.e. whether foreign income is taxable in India?

The answer will depend upon facts and on case to case basis.

Generally, NRIs are not liable to pay taxes on income earned outside India, but there may be instances where foreign income is taxable in India.

Residents in India are liable to pay taxes on their global income. But in the case of a Non-Resident Indian (NRI) or Resident but Not Ordinary Resident (RNOR), income earned by them abroad is not taxable in India. However, any income generated through their investments inside India will be taxed as per the Indian Tax rules and regulations.

Therefore, residential status is a very important factor to determine NRI Taxation in India.

NRI Tax Return Filing

The due date for filing an NRI Tax return in India is 31st July of every year. Any non-residents whose annual gross income is above Rs. 2.5 Lakh in a particular financial year is required to file their tax return in India on or before the due date. The following are the categories of income liable to be taxed-

Income earned from a business setup in India.
Any capital gains from selling the assets such as shares, mutual funds, etc. situated in India.
Income accrued as salary or from a profession based in India.
Income from house property or rental property.
Income from other sources such as interest on bank accounts or NRO deposits, gifts, dividends etc.

Deductions and Exemptions available to NRI while computing their tax liability:

Like Residents, Non-Resident Indians are also entitled to certain exemptions and deductions per the Income Tax Act. Same are provided as under:

Any Income accrued or arise in the NRE account is exempted in the case of NRI.
Payment made against children's tuition fee: Any payment is made to a school, college or educational institution within India, as tuition fees for full-time education of any two children.
Premium paid for life insurance: In this case, the insurance policy must be in the name of the NRI or their spouse or children. Also, the premium paid should be less than 10% of the total sum assured in the policy, or else it is liable for tax in India.
Unit-Linked Insurance Plan (ULIP): For a deduction under Section 80C, life insurance covers are sold along with ULIP. It helps in maximizing the tax benefits to the NRIs.
Investments made in Equity Linked Savings Scheme (ELSS): This has emerged as one of the best options to claim deductions of up to Rs in recent years. 1.5 Lakh in taxes.
Repayments made against loan principal for purchase of house property: A deduction on repayment of loan taken for purchasing or making a house property is allowed in the tax computation.
Deduction on income from house property: NRIs can easily claim a deduction on incomes accrued from house property in India. They can claim deductions while paying property taxes and on the home loan interests.
Deductions provided under Section 80D: A deduction is allowed on the premium paid for a health insurance policy.
Deductions under Section 80E: NRIs can claim a deduction on interests paid against an education loan. However, it cannot be claimed on the principal sum amount of the loan.
Deductions under Section 80G of Income Tax Act: Deduction can also be claimed on any donations made for a social cause by the NRI in India.
Deductions under Section 80 TTA: Any income accrued as interest on the savings bank account can be claimed for deductions. Faceless assessment income tax

Deductions not allowed to NRI:

Some sections of the Income Tax Act, 1961 also provide conditions under which NRIs' deductions are not allowed while filing Income tax in India. These are as follows-

Investments under Section 80C: Any income generated through the following sources are liable to taxes and not deductions-
Investments in PPF after their NRI status are not allowed.
Investments made in the National Savings Certificate (NSC).
Investments made in Senior Citizen Savings Scheme.
Investments in a five-year post-office deposit scheme.
Investments under Section 80CCG: Any deduction on the investment made in the Rajiv Gandhi Equity Savings Scheme (RGESS) is not allowed
Deductions under Section 80DD and 80DDB to differently-abled persons: NRIs are not allowed for any deductions on maintenance and medical treatment of any differently-abled person dependent on them.
Deduction under Section 80U for differently-abled persons: If the taxpayer is himself suffering from a disability, even then not allowed.
Exemption from income through the sale of property: Any long term capital gain on property is subject to be taxable. No exemption is provided to NRIs in this case.