NRI Income Tax Return

Introduction

There are so many NRI families in today’s world where a member of the family is working outside the country but sends money to his family back in India or makes investment planning for their families or their future. This raises a major concern about NRI Income tax return in India. During every tax filing season, every tax-paying citizen of the country tries to find out the best way he/she can save the total amount of income tax payable on their hard-earned money. Therefore, the NRI Income tax return works completely in favor of the NRI citizens because it allows them to bring NRI income to India, but income which is earned outside India by an NRI is not taxed in India.

Simultaneously, there are various other types of income earned by citizens that are not taxed in India. Though, most NRIs have bank accounts such as non-resident external accounts or foreign currency non-resident accounts that are used by them in India. Indian residents, however, are liable to pay tax on their savings accounts which have an interest charged above INR 10,000, but NRI residents having NRO account are not liable to pay tax on the interest that is charged on their bank accounts. Similarly, investments made by an NRI citizen are also not taxed in India.

NRI taxation rules allow people with income earned outside India to invest in the country which adds to the economy of the country and therefore is a very favorable norm. This helps the government gain investments from NRI’s without spending money on non-residents. If there are any long-term or short-term gains received from the sale of assets in the country or investments made, then the gains will be taxed in India. So, retail income is taxed in India.

If an NRI inherits the property or any other kind of asset from their parents or relative, that will not be taxed in India when the ownership is being transferred. But if there are gains generated from transferred assets such as rental income or income from the sale of the asset will be taxed for the NRI citizen. Under Section 54, 54ECand 54F there are some important benefits received from deduction of income tax that can be availed if someone invests the proceedings of any type of long term or short-term capital gains in India. But if an NRIs total gains which would include earnings from all sources such as rent, dividend, capital gains, investment income, etc. exceeds INR 2.5lakh then they must file for the process of taxes.

NRI citizens are not eligible to make a certain investment such as investing in National Saving Certificates (NSC), Senior Citizen Schemes, Post Office Time Deposits, or they are also not allowed to open new PPF accounts or extend their current PPF accounts. However, a lot of other saving instrument schemes such as home loans, life insurance, pension plan, and equity-linked saving schemes for mutual funds are still allowed for NRIs to invest in. An NRI can also claim the amount of tuition fee that is paid for his spouse or children in India. Under section 80D, health insurance policies or health checkups paid by an NRI for his/her parents or dependents that are in India is allowed.

Income Tax Slabs and Rates for NRIs for FY 2020-21 & AY 2021-22

As per the Income Tax Act of India, non-resident Indians must duly pay taxes to the Indian government. But the income tax rates for NRIs are not the same as that of Indian residents. The slabs of taxes for them are mainly based on the income they have earned and not all the other factors.

For the economy of the country, taxation is a very important aspect. Taxes are levied on various products and services that are included in the supply chain of the country. Taxation helps, improve the services and products that are availed by Indian citizens. Some of the commonly known forms of taxation are income tax, service tax, property tax, and tax that is deducted at source. But NRIs mainly must only pay income tax in India.

If an NRI falls under the jurisdiction of the income tax act of 1961, they must pay the entire taxable amount to the government. The income tax act of 1961, however, provides all the details under the category of NRI taxation, explaining on what they must pay taxes and how they must pay it. The NRI taxation category gives detailed information on all types of taxes such as income tax, property tax, wealth tax, but its focus is always income tax.

Income Tax Provisions for NRIs

A person is certified as an NRI only if he checks all the guidelines and directives asserted for it. If an NRI is earning income outside India, then that income will not fall under the jurisdiction of the income tax act. However, if he/she earns an income in India through various forms such as capital gains from investment, mutual funds, sale of assets, etc and the amount of capital gains exceed the basic exemption limit that is determined in the income tax act, then they will have to file for a tax return.

As per the Income Tax Act, taxable income for NRIs is different from the income tax charged to residents of India, this difference lies between both of their tax slabs.

The main concerning points with NRI taxation is outlined as follows:

• Income tax slabs are based on the income expected for any gender, age, or other specification in case of an NRI.
• If there is TDS, then all the income generated by an NRI is charged irrespective of any threshold value.
• Nominal deductions are not applicable to any investment income except if there are specific situations.
• If an NRIs income is subject to the clause under Section 115G of the income tax act, then e filing of income tax is not required for an NRI.

There are specific provisions that are explained in the Income Tax Act that tells how income tax is chargeable for a non-resident Indian. These provisions are as follows:

• Section 115D:Calculation of taxable income of NRI person
• Section 115E:If income earned by NRI consist only investment income or income by way of long term capital gain then tax percentage on such income will charged at 20% rate.
• Section 115F:Non-chargeable capital gains generated by an NRI through a transfer of foreign exchange assets in a few cases, - here dealing with such exceptions the transfer of foreign exchange assets will not include taxes on them.
• Section 115G:This section provides exemption to NRI from filing NRI Income tax return under some cases.
• Section 115H:Section provides certain benefits of taxation for an NRI when it becomes a resident.
• Section 115I:Any income derived from a foreign exchange asset.

The above-mentioned rules on income tax for NRIs are subject to change depending on the direction and discretion of the Central Government and the Income Tax Department of the country.

Applicable Deductions and exemptions for NRIs

Sometimes NRIs tend to pay more tax than what they are initially liable to pay because most of their incomes are subjected to heavy TDS (Tax Deductible at Source). Therefore, it is important to know the applicable deductions and exemptions provided by the government for NRI taxation.

The deductions that are allowed for an NRI are as follows:

1. Section 80C:

• Life insurance premium payment.
• Payment of tuition fees.
• Principal paid on the loan that was taken for house property
• Investments made in ULIPs.

Deduction is applicable from income generated from house property

2. Section 80D:

• Premiums paid on the health insurance of a family member or any other dependent up to 50,000 if parents are senior citizen and 25000 if parents are not senior citizen.
• Preventive health check-ups are also deductible up to a maximum of INR 5,000.

3. Section 80E:

Interests that are paid on an education loan for the NRIs own higher education, or of his spouse and children or any dependent student is deductible to a period of 8years or until the interest is paid.

4. Section 80G:

Donations made under section 80G

5. Section 80TTA:

Interest on saving bank accounts up to the amount of INR 10,000.

Income Tax Rates for 2023-24 for NRIs:

The below-given table represents the data for the latest Income Tax Slabs for the FY 2023-2024:

New Income Tax Slab for Individual (New Regime)

Note: New income tax rates are optional.

The above-mentioned information is like a drop in a sea. For an in detailed understanding about NRI Taxation, feel free to contact us. We offer an array of services related to NRI Taxation, our legal experts and experienced CA & CS professionals remain updated with the latest amendments & so provides accurate, flawless, smooth & quick services that raise no questions for our clients from the government.