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Income Tax for NRI: Simplifying Taxation Rules in India
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As an NRI, understanding the taxation rules in India can be overwhelming, especially when it comes to income tax. This guide aims to simplify the complex rules and regulations that govern income tax for NRI in India. In this article, we will cover everything you need to know about NRI tax in India, including the definition of NRI, tax rules for NRIs, income tax slab rates, TDS for NRIs, income tax rules for NRIs, capital gains tax, and section 115H of the Income Tax Act.
Understanding Non Resident Income Tax for NRI in India
Before we dive into the nitty-gritty of income tax for NRI, let's understand the definition of NRI and its implications on income tax for non-residents in India.
NRI definition
An NRI is an individual who is an Indian citizen but resides outside India, or an individual who is not a citizen of India but has resided in India for more than 182 days in a financial year.
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Tax rules for NRIs are based on their residency status. An ITR of NRI is considered a resident for tax purposes if he or she has resided in India for 182 days or more in a financial year or 60 days or more in a financial year and 365 days or more in the preceding four years. If an NRI does not meet either of these criteria, he or she is considered a non-resident for tax purposes.
NRI Income Tax Slab Rates 2024-25
The income tax slab rates for Non-Resident Indians (NRIs) for the financial year 2024-25 (Assessment Year 2025-26) that you need to know are as follows:
- Up to Rs. 2.5 lakh: Nil
- Rs. 2.5 lakh to Rs. 5 lakh: 5%
- Rs. 5 lakh to Rs. 7.5 lakh: 10%
- Rs. 7.5 lakh to Rs. 10 lakh: 15%
- Rs. 10 lakh to Rs. 12.5 lakh: 20%
- Rs. 12.5 lakh to Rs. 15 lakh: 25%
- Above Rs. 15 lakh: 30%
Old Tax Regime:
Income Range | Tax Rate |
Up to ₹2.5 lakh | Nil |
₹2.5 lakh to ₹5 lakh | 5% |
₹5 lakh to ₹10 lakh | ₹12,500 + 20% of the amount that exceeds ₹5 lakh |
Above ₹10 lakh | ₹1,12,500 + 30% of the amount that exceeds ₹10 lakh |
New Tax Regime Slabs:
Income Range | Tax Rate |
Up to ₹3 lakh | Nil |
₹3 lakh to ₹6 lakh | 5% |
₹6 lakh to ₹9 lakh | ₹15,000 + 10% of the amount that exceeds ₹6 lakh |
₹9 lakh to ₹12 lakh | ₹45,000 + 15% of the amount that exceeds ₹9 lakh |
₹12 lakh to ₹15 lakh | ₹90,000 + 20% of the amount that exceeds ₹12 lakh |
Above ₹15 lakh | ₹1,50,000 + 30% of the amount that exceeds ₹15 lakh |
These rates include the health and education cess of 4% on the total tax payable and are subject to surcharges if the income exceeds certain thresholds.
For Non-Resident Indians (NRIs), and understanding the nuances of income tax obligations in India is crucial. The tax liability for NRIs is dependent on their residential status for tax purposes and the nature of income earned in India.
- Residential Status: An individual's tax status is considered 'non-resident' if they do not meet the basic conditions of being present in India for at least 182 days during the current financial year or 60 days in the current year and 365 days spread over the four preceding years.
- Taxable Income: NRIs are taxed only on income that is received in India or arises from sources in India. This includes salaries received for services rendered in India, income from properties situated in India, capital gains on transfer of assets located in India, and income from fixed deposits or interest on savings bank accounts.
- Deductions and Exemptions: NRIs are eligible for the same deductions under Section 80C of the Income Tax Act, including deductions for life insurance, tuition fees, and contributions to Provident Funds. However, exemptions on investment income and long-term capital gains may vary based on specific bilateral treaties India has with other countries.
- Double Taxation Avoidance Agreement (DTAA): India has DTAA with several countries, which means NRIs may not have to pay tax twice on the same income. Depending on the rules of the agreement, NRIs can claim tax relief in India for taxes paid in their country of residence.
- Tax Filing: NRIs must file tax returns in India if their income exceeds the basic exemption limit of ₹2.5 lakh per financial year or to claim a refund or carry forward a loss.
Understanding Income Tax Cess and Surcharge for Non-Residents
In addition to the basic income tax, Non-Resident Indians (NRIs) might also need to pay a cess and a surcharge, depending on their income level. These are important components of the tax calculation and can significantly affect the total tax liability.
Health and Education Cess: All taxpayers, including NRIs, are required to pay a Health and Education Cess. This is charged at 4% of the income tax payable. This cess is intended to finance health and education initiatives in India.
Surcharge: The surcharge is an additional tax applied to individuals whose income exceeds certain thresholds. For NRIs, the surcharge rates are as follows:
- 10% of income tax if total income exceeds ₹50 lakh but is less than ₹1 crore.
- 15% of income tax if total income is ₹1 crore or more.
The surcharge is designed to impose a higher tax burden on higher-income earners. It is calculated after adding the Health and Education Cess to the income tax.
Impact on Total Tax Liability: Both cess and surcharge increase the total amount of tax an NRI must pay on their taxable income in India. It is calculated automatically when filing an income tax return and directly affects the final tax payment or refund.
Navigating Taxable Income for NRIs in India
Navigating Taxable Income for NRIs in India involves understanding various sources of income subject to Indian tax laws. Let's explore how income from salary, property, business, capital gains, and other sources affects NRIs' tax obligations.
Income from Salary
As an NRI, your salary income is subject to Indian tax laws if it's received in India, regardless of your current residence. This income is taxed at the applicable slab rate.
Income from House Property
Income from property located in India is taxable for NRIs. The calculation follows the same rules as for residents, with a 30% standard deduction, property tax deductions, and interest deductions. Principal repayment qualifies for Section 80C deductions, and stamp duty and registration charges are also claimable under Section 80C.
Rental Payments to an NRI
Tenants paying rent to an NRI landlord must deduct 30% TDS. Rent can be received in an Indian account or the NRI's overseas account. Additionally, Form 15CA must be prepared and submitted online to the income tax department. In some cases, Form 15CB from a chartered accountant is necessary.
Income from Other Sources
Interest income from fixed deposits and savings accounts in Indian banks is taxable in India. However, interest on NRE and FCNR accounts is tax-free, while interest on NRO accounts is fully taxable.
Income from Business and Profession
Any income earned by an NRI from a business controlled or set up in India is taxable in India.
Income from Capital Gains
Capital gains on the transfer of capital assets in India, including investments in Indian shares and securities, are taxable. For long-term capital gains on house property, the buyer must deduct TDS at 20%. However, exemptions can be claimed by reinvesting in a house property (Section 54) or capital gain bonds (Section 54EC).
Read: Navigating Form 15CA and 15CB: A Complete Guide for Foreign Remittances
Unlocking Tax Deductions and Exemptions for NRIs in India
Similar to residents, NRIs can harness various deductions and exemptions to optimise their total income. Let's explore these tax-saving avenues:
Deductions under Section 80C
NRIs can claim deductions under Section 80C, with a maximum cap of Rs 1.5 lakh for FY 2020-21. Eligible deductions include:
- Life Insurance Premium Payment: The policy must be in the NRI's name, their spouse's, or their child's (dependent/independent, minor/major, or married/unmarried), with the premium being less than 10% of the sum assured.
- Children's Tuition Fee Payment: Tuition fees paid to educational institutions in India for full-time education of up to two children.
- Principal Repayments on House Property Loan: Deductions allowed for repaying loans taken for purchasing or constructing residential properties, including stamp duty, registration fees, and transfer expenses.
- Unit-Linked Insurance Plan (ULIP) and ELSS Investments: Contributions to ULIPs and investments in ELSS funds offer deductions under Section 80C.
Other Allowable Deductions
NRIs can also claim various deductions under income tax laws, such as:
- Deductions related to house property income, including parental insurance deductions.
- Deduction under Section 80D for health insurance premiums, with higher limits for insurance of resident senior citizens.
- Deduction under Section 80E for interest paid on education loans, without any upper limit.
- Deduction under Section 80G for donations to social causes.
- Deduction under Section 80TTA for interest on savings bank accounts, capped at Rs 10,000.
Deductions Not Allowed to NRIs
Some investments under Section 80C, like PPF and NSCs, aren't available to NRIs. Additionally, deductions for differently-abled individuals under Sections 80DD, 80DDB, and 80U are limited to residents.
Exemption on Sale of Property for an NRI
Long-term capital gains for NRIs are taxed at 20%, with a TDS of 20%. However, NRIs can claim exemptions under Sections 54, 54EC, and 54F on long-term capital gains when reinvesting in specific assets or bonds. These exemptions allow NRIs to claim refunds of TDS and optimise their tax liabilities.
TDS (Tax Deducted at Source) for NRIs
TDS is a form of advance tax that is deducted at the source of income. As an NRI, TDS applies to various sources of income, such as salary, rent, interest on fixed deposits, etc. TDS on the sale of property by NRI must be deducted, and it is preferably needed to be deducted on the Capital Gains. The TDS rate for NRIs is typically higher than the rate for residents. It is important to note that NRIs can claim a refund of TDS if they have paid more than their actual tax liability.
Income Tax Rules for NRIs
NRIs receiving income from India are subject to income tax rules in India. Income from Indian sources such as rent, salary, and business income is taxable in India. However, NRIs are eligible for certain tax exemptions and deductions, such as a standard deduction of Rs. 50,000 and deductions under Section 80C, 80D, and 80TTA.
Tax implications on foreign income
If you are thinking about how much foreign income is tax-free in India, you should also know that NRIs are also subject to tax on their foreign income, but the rules and regulations vary depending on the country of residence and the tax treaty between India and that country. It is important to understand the tax implications of foreign income to avoid any legal and financial implications.
Capital Gains Tax for NRIs
Capital gains tax for NRI is a tax on the profit earned from the sale of a capital asset, such as property or stocks. NRIs investing in Indian real estate are subject to capital gains tax. The capital gains tax rate for NRIs is 20% for long-term capital gains and 30% for short-term capital gains.
NRI Income Tax for NRI simplified: Understanding Section 115H of Income Tax Act
As an NRI, you might have heard about Section 115H of the Income Tax Act, which provides certain benefits to NRIs in terms of tax. This section of the Act aims to make tax compliance simpler for NRIs who earn income from India.
The section provides that if an NRI, who is eligible to be taxed in India, satisfies certain conditions, then he or she shall not be required to file a tax return in India. The conditions are:
- The NRI's total income in India is below the taxable limit.
- The NRI has earned income from a single or multiple sources in India, and tax has been deducted at the source on such income.
- The NRI has furnished all the details of his or her income to the deductor.
- If an NRI satisfies all the above conditions, then he or she can avoid the hassle of filing a tax return in India.
Moreover, Section 115H of the Income Tax Act also provides a facility for NRIs to claim a refund of excess tax deducted at the source. If the NRI's total income in India is below the taxable limit, and tax has been deducted at the source on his or her income, then the NRI can claim a refund of the excess tax deducted.
Benefits of Section 115H for NRIs
The benefits of Section 115H of the Income Tax Act are immense for NRIs. By satisfying the conditions mentioned in the section, an NRI can avoid the hassle of filing a tax return in India. This is especially helpful for NRIs who have limited income from India and have already paid taxes on it.
Additionally, if an NRI has paid excess tax, then he or she can claim a refund of the same under this section. This is a significant relief for NRIs who have paid taxes in excess and want to claim a refund of the same.
Overall, Section 115H of the Income Tax Act makes tax compliance simpler for NRIs and provides them with certain benefits that they can avail of to avoid unnecessary income tax for NRI.
Investment perspective
Investing in India as an NRI can be a lucrative option, but it's important to be aware of the tax implications. NRIs can invest in a variety of instruments such as mutual funds, stocks, and other investments, but each investment option comes with its own tax implications.
When it comes to mutual funds, NRIs need to be aware of the tax deducted at source (TDS) on capital gains, which is currently at 15%. Moreover, the long-term capital gains tax on equity mutual funds is 10% without indexation benefit, and 20% with indexation benefit.
When it comes to stocks, NRIs need to be aware of the capital gains tax on the sale of shares. The NRI tax rate for short-term capital gains on the sale of shares is 15%, while the long-term capital gains tax rate is 10% without indexation benefit, and 20% with indexation benefit.
It's important to note that NRIs also need to comply with the Foreign Exchange Management Act (FEMA) regulations while investing in India. These regulations specify the limit of investment and repatriation of funds.
Navigating the tax implications of land purchase for NRIs in India
Investing in land is one of the most common ways for NRIs to maintain a connection with their home country. However, it's essential to understand the income tax for NRI implications of land purchase in India before making any investment decisions.
If an NRI purchases land from an Indian resident, the transaction will be subject to capital gains tax. The capital gains tax will depend on the holding period of the land, with long-term capital gains being taxed at a lower rate than short-term capital gains. Additionally, the NRI must obtain a Tax Deduction and Collection Account Number (TAN) and withhold tax at the applicable rate while paying the purchase price to the Indian resident.
In case the NRI sells the land, he/she would be required to pay capital gains tax in India. The capital gains tax will depend on the holding period of the land, with long-term capital gains being taxed at a lower rate than short-term capital gains. NRIs should also be aware of the Double Taxation Avoidance Agreement (DTAA) between India and their home country. This agreement provides relief to NRIs from paying taxes on the same income twice in both countries.
Taxation on Sale of Property for NRIs in India
Type of tax | Rate of tax |
Short-term capital gains tax on property sold within 2 years of purchase | 30% (plus applicable surcharge and cess) |
Long-term capital gains tax on property sold after 2 years of purchase | 20% (plus applicable surcharge and cess) |
TDS on sale of property | 20% (if the NRI has capital gains) or 22.66% (if the NRI has rental income) |
TDS on rental income | 30% (plus applicable surcharge and cess) |
Tax on rental income (if TDS is not applicable) | As per slab rates (plus applicable surcharge and cess) |
Additionally, NRIs should consider the Foreign Exchange Management Act (FEMA) regulations while investing in land in India. FEMA regulations limit the amount of money that an NRI can invest in land in India, and NRIs must ensure that they comply with the regulations.
Latest NRI taxation Rules in India
The latest rules for income tax for NRI in India state that any individual who spends more than 120 days in India during a financial year will be considered a resident for tax purposes. The Finance Act 2020 introduced a new section 115BAC, which offers lower income tax rates for individuals who opt to forgo deductions and exemptions. NRIs must file their tax returns in India if their income in India exceeds the basic exemption limit of ₹2.5 lakh or if they have earned income from any source in India, such as rental income from property, interest income from fixed deposits, or capital gains from the sale of assets in India.
If NRIs' home country has a Double Taxation Avoidance Agreement (DTAA) with India, they can claim a tax credit for taxes paid in India on their income in their home country. NRIs need to obtain a Tax Identification Number (TIN) in India to file their tax returns. NRIs can also invest in various tax-saving instruments like National Pension System (NPS), Public Provident Fund (PPF), and Equity-Linked Savings Scheme (ELSS) to save on taxes.
NRIs should also be aware of the tax implications on their investments in India, such as capital gains tax on the sale of property, securities transaction tax on the sale of stocks, and dividend distribution tax on dividends received from Indian companies. As an NRI, it's essential to stay informed about the latest tax rules and regulations to avoid any legal or financial consequences. It's advisable to seek professional advice to ensure compliance with tax laws and to make informed investment decisions.
Simplify your Real Estate Investments in India with NoBroker's NRI services
Understanding income tax for NRI in India can be overwhelming, but it's crucial for NRIs to know their tax liabilities to avoid any legal or financial repercussions. In this comprehensive guide, we've covered the essential aspects of income tax for NRI in India, including income tax rules, tax implications on foreign income, and capital gains tax. We've also discussed Section 115H of the Income Tax Act and the investment perspective, including tax implications on NRI investments in India.
At NoBroker, we understand the challenges that NRIs face while managing their real estate investments in India. That's why we offer specialised NRI services to make property management hassle-free for NRIs. From buying, selling, renting, or managing your property, our team of experts can help you with all your real estate needs in India.So, if you're an NRI looking for professional assistance in managing your Indian real estate investments, we invite you to explore our NRI services at NoBroker. Get in touch with our experts today to learn more about our services and how we can help you navigate the complex world of NRI taxation in India. Click on this link to explore the wide span of NoBroker's NRI services.
Frequently Asked Questions
Ans: NRIs are liable to pay income tax on their Indian income as per the income tax slabs applicable to resident individuals. However, the tax liability may vary depending on their residential status and the type of income they earn in India.
Ans: NRIs are required to file income tax returns in India if their taxable income in India exceeds the basic exemption limit of Rs. 2.5 lakhs. However, if their total income is below the basic exemption limit, they may not be required to file returns. It's advisable for NRIs to consult with a tax expert to determine their tax liability and filing requirements.
Ans: NRIs are not required to pay tax on their foreign income in India, but they are required to disclose their foreign income and assets while filing their Indian tax returns. Failure to disclose foreign income and assets can result in penalties and legal repercussions.
Ans: Section 115H of the Income Tax Act provides tax relief to NRIs by allowing them to claim a refund of the tax deducted at source (TDS) on their Indian income. This section also allows NRIs to avoid double income tax for NRI on their income earned in India and their home country.
Ans: NRIs are subject to tax on their investments in India, including mutual funds, stocks, and property. The tax liability may vary depending on the type of investment, the duration of holding, and the type of income earned from the investment. It's advisable for NRIs to consult with a tax expert to determine their tax liability on their investments in India.
Ans: Surcharge calculations for different types of income vary for NRIs. For total income over ₹50 lakh but under ₹1 crore, a 10% surcharge is added; above ₹1 crore, it increases to 15%, calculated on the income tax before cess.
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