Nri taxabilty

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

18 September 2014 An NRI (working in Merchant Navy) received NRI salary directly in Indian Bank Account, is it Taxable in India?

Is there any difference if the salary is deposited directly by employer in NRE/NRO account.

Filing return of Income of NRI.

Please guide me.

Nikhil Kaushik

Nikhil Kaushik (Expert)
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18 September 2014 the salary received directly in Indian bank account will be considered to be as income accrued in India and taxed accordingly.

If the money is deposited in NRE account then no taxability should arise.

Querist : Anonymous

Querist : Anonymous (Querist)

18 September 2014 thank you sir
if salary is directly deposited by employer in NRE account then it will not be taxable

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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03 August 2024 ### Taxability of NRI Salary and Filing Returns

Here's a detailed overview of the tax implications for an NRI (Non-Resident Indian) working in the Merchant Navy, along with how to handle salary deposits and filing returns:

#### **1. Taxability of NRI Salary**

**General Tax Rules for NRIs:**

- **Income Earned Outside India:** As per Indian tax laws, income earned by an NRI outside India is not subject to Indian income tax. This applies to salary earned by an NRI working abroad, such as on a merchant ship.
- **Income Received in India:** If an NRI receives income in India (such as through an Indian bank account), this income might be taxable depending on its nature and source. However, salary earned outside India and merely deposited into an Indian account is typically not taxable in India.

**Special Considerations for Merchant Navy Employees:**

- **Section 10(6)(vii) of the Income Tax Act:** This section provides a specific exemption for salaries received by employees of the Indian Government or an Indian concern who are employed on ships operated by an Indian company. The salary earned by an NRI in such cases is not taxable in India, provided the employee is outside India for more than 182 days during the relevant financial year or 365 days over the last four years, and the salary is earned in connection with such employment.
- **Direct Deposit to Indian Account:** The nature of the account (NRE or NRO) into which the salary is deposited does not affect the taxability of the salary itself. If the salary is exempt under Section 10(6)(vii), the deposit into an NRE or NRO account does not change its exempt status.

#### **2. Difference Between NRE and NRO Accounts**

- **NRE Account:** An NRE (Non-Resident External) account is used for income earned outside India and is generally exempt from Indian income tax, provided the income is earned abroad and deposited into this account.
- **NRO Account:** An NRO (Non-Resident Ordinary) account is used for income earned in India. Interest earned on NRO accounts is subject to tax in India. However, salaries earned abroad and deposited into an NRO account are still considered as foreign income and are not taxable in India.

**For NRI Salary:**
- **NRE Account:** If the salary is deposited into an NRE account and it qualifies for exemption under Section 10(6)(vii), it will not be taxable in India.
- **NRO Account:** Even if the salary is deposited into an NRO account, it is not taxable in India if it qualifies for exemption under the same section.

#### **3. Filing Income Tax Returns**

**Filing Requirements:**

- **NRI Salary Exemptions:** If the salary qualifies for exemption under Section 10(6)(vii), the NRI may not need to file a return in India. However, it is advisable to file a return to claim the exemption and provide evidence of eligibility.
- **Other Income:** If the NRI has other sources of income in India (e.g., interest on NRO accounts, rental income, etc.), they must file a return to report this income and pay any applicable taxes.
- **Forms to Use:**
- **ITR-1 (Sahaj):** For individuals having income from salary, pension, or other sources and who do not have business income.
- **ITR-2:** For individuals who have income from sources other than salary and pension, including capital gains and income from other sources.

**Steps to File a Return:**

1. **Gather Documents:** Collect all relevant documents, including Form 16 (if applicable), bank statements, and proof of exempt income.
2. **Choose the Correct Form:** Select ITR-1 or ITR-2 based on the sources of income.
3. **Fill the Return:** Report income and claim exemptions as per the applicable sections.
4. **Submit the Return:** File the return online through the Income Tax Department's e-filing portal.
5. **Verification:** Complete the verification process as required, either through e-verification or by sending a signed physical copy of the acknowledgment.

**Recommendation:**

1. **Consult a Tax Professional:** Given the complexities involved in cross-border taxation, it is advisable to consult a tax professional or accountant who specializes in NRI taxation to ensure compliance and optimal tax planning.
2. **Verify Compliance:** Ensure that all conditions under Section 10(6)(vii) are met and maintain proper documentation to support the tax exemption claim.

By adhering to these guidelines, you can ensure that your salary income is correctly treated under Indian tax laws and manage your tax obligations efficiently.