This article is all about the NRI and its taxation aspects in India. Generally we observed that most of the NRI tax payers are in dilemma at the time of return filing. Therefore in this article we are covering the tax treatment of the income of NRI earned in India, which bank accounts should be maintained by NRI, basic exemption and deduction allowed for NRI and so on.
For any queries, NRI is trying to reach out their tax consultants for clearing their doubts or started goggling the Tax Portals. The most common doubts are:
If you are also one of them, relax!!! DO NOT WORRY, here is an effort to clear your all doubts and help you in all the possible way. Let’s decode it one by one…
Taxability in India depends on the Tax Status of assesses and whether your tax status is of NRI or not? Can be determined as per Section 6, the criteria are as under:
(a) If he is in India during the relevant previous year for a period amounting in all or in aggregate to 182 days or more.
(b) If he was in India for a period or periods amounting in all to 365 days or more during the four years preceding the relevant previous year
he was in India for a period or periods amounting in all to 60* days or more in that relevant previous year. (*182 days refer note)
For persons as mentioned below test (a) remains the same but in test (b) words ‘60 days’ have been replaced by 182 days.
For Indian citizen going abroad on a job or as a member of crew of an Indian ship
In case of an Indian citizen:
♦ Who is going outside India for a job and his contract for such employment outside India has been approved by the Central Government; or
♦ He is a member of crew of an Indian ship;
For Indian citizens and persons of Indian origin*
In case of an individual being a citizen of India, or a person of Indian origin, who being outside India, comes on a visit to India in any previous year’
*A person shall be deemed to be of Indian origin if he or either of his parents or any of his grandparents was born in India or undivided India
A. For an NRI, only Income Earned in India or Accrued in India is Taxable in India, rest of the Income is exempted in India. It means Income Earned outside India by an NRI is not taxable in India.
Certain Points to remember in this regard:
B. Income from House Property situated in India/Housing Loan for Acquisition of House
Income from House Property situated in India (Rental Income) is taxable for an NRI. However Deduction u/s 24 of Income Tax Act, 1961 for Standard Deduction @ 30% and for Interest on Housing Loan and Deduction u/s 80C for Principal Repayment, Stamp Duty and Registration Charges are available to NRI, in the same way as it is available to a Resident Individual.
Basically there are three types of Account an NRI can maintain in India (Apart from his local account in his country of Residence, i.e.-Foreign country).
An NRI is supposed to close his Indian Saving Account or convert it to NRO Account and any Indian Income (Rent, Commission, Dividend etc) should be deposited into his NRO Account.
This Account is for remitting the overseas savings to India by converting the Foreign Currency into Indian Rupees.
It’s a kind of Fixed Deposit Account with some lock in period that can be maintained only in Foreign Currency.
Once you become an NRI, you are supposed to close your normal Demat account and transfer (if not selling) your existing shares to NRO Demat Account. This NRO Demat account will allow you to purchase shares from the primary market only.
For, Purchasing shares from the secondary share market an NRI need to open PIS (Portfolio Investment Scheme) Account, where he/she can buy shares from his/her NRE account fund. Further upon sale, sale proceeds will be credited to NRE/NRO account respectively based on shares were purchased on repatriable / non-repatriable basis.
Basic Exemption of Rs.250,000/- and most of the deductions under chapter-VIA (like-LIC, ,Tuition Fee, Housing loan, Mediclaim, Education Loan etc) is available to an NRI, except :
As far as Filing of Income Tax Return is concerned- An NRI should mandatorily file his Income tax return if :
**So, even if Gross Earning is less than the Basic Exemption, and you have some amount of Tax Deducted at Source, it is advisable to file your income Tax Return and claim the TDS Refund. Without filing the Return, it’s not possible to get the TDS Refund.
Returning NRI will be treated as RNOR (Resident but Not Ordinary Resident) for 2 years if:
An Assessee having RNOR status is allowed to enjoy exemptions available to NRI for a period of 2 years after returning India, hence deposits held in foreign currency, which are exempt for an NRI, shall be exempt to returning NRIs for 2 years thereafter they (returning NRIs) will be treated as resident Individuals.
(Author is a “Finance Functional Consultant” with “Awal Gulf Manufacturing Company”, Manama, Kingdom of Bahrain and can be reached at “[email protected]”).
(Republished with Amendments)