ser Income Tax Provisions an NRI should know!! Income Tax Provisions an NRI should know!!

Are you an *NRI (defined at the end), then you should know few provisions of Indian Income Tax Act which treat NRIs differently from resident Indians. I have tried to articulate few provisions of Income Tax Act, which makes tax implication on residents Indian and NRIs different:

1.For Residents, their global income is taxable while for NRIs, income which is earned or received in India is taxable.

If a resident Indian is earning income out of India and as well in India, he is liable to pay tax on his total income i.e on Indian income and foreign income both. While if an NRI is earning income abroad and in India too then he shall pay tax in India too but only on that income which is earned in India. He can claim tax credit of tax paid in India in his resident company depending on case to case.

2. Benefit of basic exemption limit is not available to NRI, if only income he is earning in India is Long term capital gain.

Basic exemption limit for A.Y 2019-20 is INR 2.5 lakh. It means every person (resident/nonresident), if his income in India is upto INR 2.5 Lakh, he is not liable to pay any income tax in India. But if that person’s only income in India is Long term capital gain (LTCG) then tax implication will change based on his residential status. If he is resident, then he is not liable to pay any tax as his income is below exemption limit. However, If he is NRI, he shall pay tax on this LTCG at specified rate irrespective of the fact income is below exemption limit.

Other way of analyzing the provision is, if resident has LTCG of INR 4 Lakh then he is liable to pay tax on INR 1.5 Lakh (i.e amount above basic exemption limit) however an NRI has to pay tax on total INR 4 Lakh.

3. An NRI cannot invest in PPF.

Investment in PPF (Public Provident Fund) helps tax payer to claim tax benefits under Section 80C for up to a maximum of 1.5 lacs per annum. Also, interest earned on PPF account and maturity proceeds both are tax exempt. This makes it one of the best investment for tax purposes. But an NRI cannot open or invest in PPF anymore. Please note, if one’s residential status subsequently changed to NRI, the account was allowed to be run till maturity.

4. Deduction under section 80DD and 80DDB for the expenditure incurred for the medical treatment of self or dependent (handicapped/person of disability/suffering from specified disease) is not available to an NRI.

It means if NRI incur any expenditure for self or dependent, mentioned in section 80DD and 80DDB, he cannot claim any deduction. While if this expenditure is incurred by resident, he can claim deduction, as specified.

Please note, deduction under section 80D, for amount paid as medical insurance or medical expenditure incurred on the health of self or family is available for resident and non resident both.

5. Full Tax Rebate on annual income upto INR 3,50,000 (INR 5,00,000 as per interim budget 2019) under section 87A is not available to an NRI.

Though basic exemption limit as per slab rate is INR 2.5 Lakh (A.Y 2019-20) but if a resident whose taxable income is INR 3.5 lakh, he  is also not liable to pay any tax as he gets full tax rebate under section 87A. But this tax rebate is not available to NRIs. Hence, if NRI has income of INR. 3.5 lakh then he shall be liable to pay tax on INR 1 Lakh (income above basic exemption limit) as per applicable slab rate.

6. TDS rate applicable on an NRI is different from resident Indian.

TDS means Tax Deducted at Source/Withholding tax. TDS are applicable on non residents is different from residents. Forexample, if resident Indian sell an immovable property in India, buyer shall deduct 1% TDS on sale consideration that too if sale value is more than INR 50 lakh. While, if a property is sold by NRI, TDS rate is approx. 20%. Similarly, TDS rate in case of rental and interest income of NRIs is 30% which is quite high as compare to TDS rate applicable on residents.

7. Senior citizen NRI cannot take the benefit of slab rates available for senior citizen resident individual.

In India, we have different income tax slab rates for different age group. For A.Y 2019-20, If a person is aged between 60 years to 80 years, he will be consider as senior citizen and his income upto INR 3 Lakh will be exempt from income tax. If a person’s age is more than 80 years, he will be consider as super senior citizen and his basic exemption limit is INR 5 lakh. But this benefit is available only if a person is resident Indian. For NRIs, even he is senior citizen or super senior citizen, all come under one category and normal slab rate will be apply on him i.e his income only upto INR 2.5 lakh will be exempt from income tax.

8. Deduction on interest on deposits upto INR 50,000 under section 80TTB is not available to an NRI.

Resident Indian who are senior citizens and earn interest income upto INR 50,000 on their fixed deposits or saving accounts are eligible for deduction under section 80TTB. While this deduction is not available to NRI Senior citizens.

9. Aadhaar is not mandatory for NRIs

Section 139AA of the Income-tax Act, 1961 provides for mandatory quoting of Aadhaar for filing income tax return. But this is applicable on residents only. NRIs are neither eligible to have aadhaar nor required to quote it while filing income tax return.

*Non-resident Indian (NRI) is an individual who is a citizen of India or a person of Indian origin and who is not a resident of India. Thus, in order to determine whether an Individual is a non-resident Indian or not, his residential status is required to be determined. An individual is said to be non-resident in India if he is not a resident in India and an individual is deemed to be resident in India in any previous year if he satisfies any of the following conditions:

  1. If he is in India for a period of 182 days or more during the previous year; or
  2. If he 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.

However, condition No. 2 does not apply where an individual being citizen of India or a person of Indian origin, who being outside India, comes on a visit to India during the previous year.

A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grand-parents, was born in undivided India.

Author Bio

Qualification: CA in Practice
Company: https://www.nricaservices.com/
Location: Navi Mumbai, Maharashtra, IN
Member Since: 13 Mar 2019 | Total Posts: 1
We provide Indian tax related services to NRIs all over world. Our specializations are tax filings (individual/corporate), issuing/filing repatriation certificates(15ca/cb), DTAA consultancy, incorporation of company, GST registration/filings etc. View Full Profile

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23 Comments

  1. Sandip says:

    I have 2 flats out of it in 1st my family stays & 2nd i have rented which monthly rent i am receiving in my wife’s bank account. hence please let me know about ITR filing & sales procedure if want to sale of the same.

  2. raju says:

    Dear Sir
    Can you please provide the answers to some of my serious doubts

    I am a non resident having the following incomes in india

    Capital gain on shares and interest from bank account

    + I have my salary in Oman

    I) filed the IT return in 2017-18 as a resident Individual and the return was accepted by the dept and I got my TDS refund also .

    2) Is there any issue if I file the return as a resident instead of non resident ?

    1. UshmaJain says:

      Dear Raju ji,

      Please find my response:
      1. What’s done is done, no need to take any further action regarding this unless you get any notice from I T department.
      2. If based on number of days(182 days criterion) spent in India in financial year, your residential status comes out to be non resident, then file ITR-2, in that case only income which is earned and received in India will be taxable in India.
      If your status is resident, then file ITR-1, in that case your global income will be taxable in India.
      You can contact me at caushmajain@gmail.com for further assistance.

      Regards

      1. raju says:

        Dear Sir

        Thank you very much for your kind clarification . While filling the LTCG in ITR 2 , can I mention the net LTCG earned as a single figure OR

        Is it required to show the Net consideration , cost of acquisition , Long term capital losses – all separately .

        Thanks

  3. Gurumoorthy says:

    My daughter went to US to do her further studies on 28/08/2017. She just completed her course.
    She would return next week for a period of 3 weeks and would return back to US as she has got a job offer and she has also got EAD.
    I Would like to know whether she should file her return as an NRI?
    She has income from other sources by way of interest income from deposits.
    Also kindly answer my following queries:
    1) she has an already running ppf account, would contribution made in it during last year qualify for 80c exemption
    2) she also has a NPS tier I account, would contribution made in that account qualify for exemption
    3) her existing bank account hasn’t been changed to nro account, yet as she was not in India (of course will complete formalities) in due course while she’s here. Will that attract any penalty.
    4) most importantly, her last year return was filed by a CA who has filled her status as resident. I just noticed now,. When checked his interpretation was she’s just gone to study and hence he didn’t change her status when he filled her return last year.
    5) was it wrongly projected, and is so is there any penalty. Can it be rectified now?
    6) There’s some CFL of short-term in previous years. Can it be carried forward now her status would change?
    And final query
    Should she file ITR 1 as her income is around 3 lacs only from interests. And no short or ltcg this year as her trading accywas closed 2 years back.
    Thanks in advance.
    An early reply would be appreciated .

    1. UshmaJain says:

      Dear Gurumoorthy ji,

      Your daughter should file her tax return if her total income in India is more than exempt income or to claim refund of extra TDS deducted or to maintain clean records with Indian I-T department. She shall file ITR2 as she is non resident for the purpose of tax. Please contact me at caushmajain@gmail.com to get step by step assistance in tax filing.

      Regards

  4. Ratna Chaudhuri says:

    Not getting the drop down menu for the jurisdiction of residence. If I write US manually, it can’t be uploaded. Where can I find the latest ITR 2

  5. Krishna says:

    One of my friend who is working for Indian company and on site posting in MINNEAPOLIS state USA and came back on 27th Sept 2018. He is a RESIDENT for FY 18-19.(Stayed in India for more than 182 days )& Paid Federal Income Tax & Social Security Tax there. While issuing Form 16, the Indian company deducted tax for the whole amount including salary received in USA for which he paid Fed Tax and SS Tax there.(Form-W-2 issued) Can he get any DTAA benefit or The amount received in USA is taxable or Not?

  6. P.ASHOKKUMAR says:

    My son is working for Indian company and on site posting in Taxes state USA. He is NON RESIDENT for FY 18-19. & paying Federal Income Tax & there is no state tax. For tax remittance W-2 is issued to him, wherein FED ID as well as SSN are mentioned for his identification. In such a case, can we write Jurisdiction of resident as FEDERAL INCOME TAX AUTHOURITY TEXAS USA and FED ID or SSN for Tax Identification number? Shall be thankful to you if above clarification is provided at the earliest .

    1. UshmaJain says:

      Dear Ashok ji,

      Now I-T department has issued prefilled ITRs, you just need to take USA from the drop down options of jurisdiction of residence and in TIN no. you can fill SSN no.

      Regards

    1. UshmaJain says:

      Dear Ashok ji,

      You shall first determine residential status of person working in foreign ship considering all relevant income tax and DTAA provisions between countries involved. Then you should fill ITR.

      Regards

  7. Rachit Jain says:

    Can you provide couple of example as to what should we fill in the Jurisdiction of resident in PY and Tax Identification number?

    1. UshmaJain says:

      Dear Rachit ji,

      Sorry for the delay in reply.
      I-T department has issued new prefilled ITR forms which have drop down options from where you can choose jurisdiction of residence. Regarding TIN no, it is Tax identification number used for tax purposes in the country in which person is resident. It has different name in different countries, for example, SIN(Social Insurance Number) in Canada, SSN(Social Security Number) in USA or NI (National insurance number) in UK etc.

      Regards

      1. alpha says:

        Dear UshmaJain, On your comment each country has different name for TIN, I agree. and you suggested as SSN- SSN is not a tax number, it is everything (an Identity, welfare, benefits etc.). So you cannot say SSN is a tax number. Yes, it is also used while filing for taxes as well. Just my 2 cents. Thanks

  8. UshmaJain says:

    Dear Samir ji,

    If you are filing ITR-2 and you are non resident, you shall provide Jurisdiction of Stay and Foreign Tax ID no. irrespective of the fact that your income is below INR 2.5 Lakh. Please note: My view is based on notified ITR 2 for A.Y 2019-20, as this form is still not available for filing.

    Regards

  9. Samir Kumar Basak says:

    If OCI holder and now Foreign National.having income far less than 2.5 Lakh p.a.
    Is it compilsory to provide his Jurisdiction of stay and foreign Tax id no as prescribed this year in For ITR 2 A Y 2019-2020

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