Taxation for NRI in India

Non-Resident Individual is an individual who is not a resident of India for tax purposes.

Determination of Residential Status

The first step is to check on the residential status of the Individual.

In order to determine whether an Individual is a Non-Resident or not, his residential status is required to be determined u/s 6 of the Income Tax Act, 1961 as given below:

1. If an individual is in India for a period of 182 days, or more during the previous year or 2. If an individual is in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year.

An individual who does not satisfy both the conditions as mentioned above will be treated as Non-Resident in that previous year.

However, in respect of an Indian citizen and a person of Indian origin who visits India during the year, the period of 60 days as mentioned in (2) above shall be substituted with 182 days.

The similar concession is provided to the Indian citizen who leaves India in any previous year as a crew member or for the purpose of employment outside India.

The Finance Act, 2020, w.e.f. Assessment Year 2021-22 has amended the above exception to provide that the period of 60 days as mentioned in (2) above shall be substituted with 120 days, if an Indian citizen or a person of Indian origin whose Total Income, other than Income from Foreign Sources, exceeds ₹ 15 lakh during the previous year.

The Finance Act, 2020 has also introduced new Section 6(1A) which is applicable from Assessment Year 2021-22. It provides that an Indian citizen earning Total Income in excess of ₹ 15 lakh (other than income from foreign sources) shall be deemed to be Resident in India if the individual is not liable to pay tax in any country.

Determination of Income

The Income is dependent on the Residential status of the individual as mentioned above.

If the status is "Resident"then Global income of the individual shall be taxable.

If the status is "Non Resident" then only income earned or accrued in India shall be taxable.

Special Provisions for NRI

Computation of Tax under section 115D

• No deduction allowed in the computation of investment income of an NRI

• If the assessee is an NRI
• No deduction is allowed on the gross total income (including only income from investment and long-term capital gains)
  • If income from investment and long-term capital gains form only a part of the gross total income, such income will be reduced and the remaining amount might be eligible for availing deductions under Chapter VI-A.

Tax on income from investment and long term capital gains section 115E

• Section 115E provides for the levy of income tax on the investment income and long-term capital gains of a non-resident Indian.
• It is provided that if the total income of a non-resident Indian consists only of investment income or income by way of long-term capital gains relating to long-term foreign exchange assets, then income tax would be payable on the long-term capital gains at 10% and at 20% on investment income.
• Thus, as per Section 115E income tax 10% only would be charged in respect of long-term capital gains arising any of the assets mentioned in "specified assets".
• However, the long- term capital gains on non-specified assets, like property, land, jewelry, etc. would be charged at 20%.
• I.T. on short-term capital gains on equities liable to S.T.T. would be 15% as per Section 115 AD.

Non-chargeable capital gains on transfer of foreign exchange assets in certain cases Section 115F

• Section 115F provides for complete exemption of long-term capital gains on the transfer of foreign exchange assets in certain cases.
• in the case of a NRI , any long- term capital gains arise from the transfer of a foreign exchange asset and the NRI has within a period of six months from the date of such transfer invested or deposited the whole or any part of the net consideration in any specified assets as specified by Central Government , then no tax is payable.
• Thus, if the amount of the net consideration is invested in the purchase of a new asset as specified earlier, then no income tax is levied on such long-term capital gains.
• Where, however, the cost of the new asset is less than the net consideration in respect of the original asset, then income tax is to be levied on the proportionate capital gain.

Non-filing of returns of income in specific cases Section 115G

A privilege is granted to a NRI who has income only from foreign exchange of assets.

Thus, it is provided in Section -115G that a non-resident Indian is not required by Section 139(1) to file an income tax return, if the below conditions are satisfied:

• Total income during the previous year is only through income from investment and/or long-term capital gains and
• TDS has been deducted from the above mentioned income

Benefits of taxation after an NRI becomes a resident Section 115H

Sometimes a NRI may become resident in India in any subsequent year.

Normally, a resident is not entitled to the special tax concession under Chapter XII-A of the Income Tax Act ,i.e investment income of foreign exchange assets at the 20% rate of income tax.

As per section 115H, a NRI who becomes a resident in India in a subsequent year and wishes to avail himself of the special provisions of Chapter XII-A, shall furnish to the Assessing Officer a declaration in writing along with his return of income under Section 139 that the provisions of taxation to remain intact until the asset is converted into a monetary amount

Non-application of provisions for NRI taxation Section 115I

A NRI may choose not to be governed by the provisions of this Chapter XII -A, for any assessment year by furnishing his return of income for that assessment year under section 139 declaring therein that the provisions of this Chapter shall not apply to him for that assessment year and if he does so, the provisions of this Chapter shall not apply to him for that assessment year and his total income for that assessment year shall be computed and tax on such total income shall be charged in accordance with the other provisions of this Act.

Deduction under section 80

The following deductions are available for NRIs:

1. Under 80 C:

• Life Insurance Premium
• Tuition fee payment - Fees paid to any institution in India for the full time education of any 2 children
• Principal payment on loan for purchase of house property - Payment of EMI of a loan for a house property as well as stamp duty, registration fees and other expenses incurred in the transfer of a house property to an NRI will be allowed for tax deductions
• Investment in ULIPs - Investment in Unit Linked Insurance Plan of LIC Mutual Fund
• Deduction from House Property Income - Deduction up to a maximum of INR 2,00,000 for interest paid on a home loan for a house which is vacant

2. Under 80 D:

• Premiums of health insurance of the immediate family and dependents
• Up to a maximum of INR 5000 for preventive health check-ups.

3. 80 E: Deduction of interest paid on an education loan for the higher education of self, spouse, children or a dependent student subject to the earlier of a period of 8 years or till the interest is paid.

4. 80 G: Applicable only if appropriate donations have been made as per Section 80G of the Income Tax Act.

5. 80TTA: Deductions up to a maximum of INR 10,000 on interest earned on savings bank account.

FAQs

1. When is the due date to file returns of NRI?

The due date shall be the same as the resident individual i.e 31st July of every year.

2. Can NRIs avoid Double Taxation?

Yes. NRIs can avoid double taxation by relief from the Double Taxation Avoidance Agreement (DTAA) between the two countries.

Relief from Double Taxation can be provided in two ways:

• Bilateral Relief: When there is an agreement between two countries, relief is calculated as per the mutual agreement between such two countries. Bilateral relief can be granted by either of the following methods:
  • Exemption Method: Under this method, income is taxed in only one country
  • Tax Relief Method: Under this method, income is taxed in both countries. Relief is granted in the country of residence.
• Unilateral Relief: When there is no mutual agreement between the countries, relief is provided by the home country.

Relief under section 90

Section 90 of the Income Tax Act is associated with relief measures for taxpayers involved in paying taxes twice i.e. paying taxes in India as well as in Foreign Countries or territory outside India. This section also contains provisions that will certainly enable the Central Government to enter into an agreement with the Government of any country outside India or a definite territory outside India. Further, it intends to grant relief for the taxes paid in India and in any country outside India.

Relief under section 91

Section 91 shall apply if the country in which tax is paid has not entered into any agreement with the Government of India. Further, where there is no Bilateral Agreement in such cases unilateral agreement applies.

3. Should TDS be deducted for a NRI?

Yes, all incomes of NRIs are charged to TDS irrespective of any threshold value.

4. Can NRI claim exemption for sale of property?

Yes, NRIs can claim exemptions under Section 54, Section 54EC, and Section 54F on long-term capital gains.

5. Is the tax slab same for Senior citizen NRI?

Yes, the slab rate is the same as a resident senior citizen.