Non-resident Indians need to pay appropriate taxes as and when they fall under the jurisdiction of the Income Tax Act of 1961. NRI taxation covers aspects of income tax, wealth tax and property tax, among others but the focal point of taxation lies on income tax.

Based upon a set of specific guidelines and directives, it can be ascertained if a person is actually an NRI.  If his/her income in India through aspects like capital gains from investments in shares, mutual funds, property rental and term deposits exceed the basic exemption limit as defined in the Income Tax Act, he/she would have to file a tax return.

The major points concerning NRI taxation can be outlined as follows:

  • Income tax slabs for NRIs are based only on the income barring any gender, age or other specification.
  • In case of TDS, all incomes of NRIs are charged irrespective of any threshold value.
  • No nominal deductions are applicable on investment income except under specific situations.
  • Tax filing isn’t normally required for NRIs if the income is subject to clauses under Section 115G of the Income Tax Act.

*NOTE: Section 115G has been explained under the point 4 of RETURNS

1) RESIDENTIAL STATUS OF NRI:

The person who is not a resident of India Is known as Non- Resident Indian

So before we understand who is a Non Resident Indian, lets first look at who is a Resident Indian – A person would be a RESIDENT of India for income tax purposes if

  • He/She is in India for 182 days or more during the financial year

OR

  • If he/she is in India for at least 365 days during the 4 years preceding that year AND at least 60 days in that year.

So therefore – if you do no satisfy the condition laid out above– you will be considered a NON RESIDENT INDIAN. In case you are an Indian Citizen and you leave India for employment outside of India or as a member of the crew on an Indian ship, in other words if you take up a job outside India the 60 days minimum period will be increased to 182 days.

This increase in days is also applicable to you if you are an India citizen or a PIO and you live outside India and you come on a visit to India. The intention behind relaxing the minimum number of days to 182 is to protect your taxability (so you don’t get taxed as a Resident Indian) in case you decide to visit India for an extended stay to visit family or meet other obligations and end up staying more than 2 months.

Besides Resident & Non Resident Indian there is a third category – That of a RESIDENT BUT NOT ORDINARILY RESIDENT- after having spent many years abroad if you have recently moved back to India, you may fall in the category of Resident but not Ordinarily Resident (RNOR).

NOTE:

a) Person of Indian Origin

A person shall be deemed to be of Indian origin if he or either of his parents or grandparents were born in undivided India.

2) SLABS applicable on NRIs :

Income tax Slab for Non Resident Indian for the Assessment Year 2017-18

Taxable Income Tax Rate
Up to INR 250,000 N/A
INR 250,000 to INR 500,000 10%
INR 500,000 to INR 10,00,000 20%
Exceeding INR 10,00,000 30%

Special rates of taxes:

a) Section 112: LTCG on sale of capital assets is taxed as:

  • On LTCG on capital indexed bonds -10% without indexation
  • On LTCG on other assets -20% with indexation

In respect of listed securities (other than unit) or units or zero tax coupon bonds, assessees have the option of :

  • tax @ 20% on long-term capital gain computed by considering the ‘indexed’ cost of acquisition and improvement; or
  • tax @ 10% on long-term capital gains computed by considering the actual i.e. the historical cost

Note:

In case the income of an individual is more than INR 1 crore, income tax chargeable will be increased by a surcharge of 10% on the same tax. There is a relief available on the surcharge considering that the sum total of income tax and surcharge will not exceed income tax on INR 1 crore by more than the income amount over INR 1 crore.

Education cess will be applicable as per the rates set by the Income Tax Department and it is 2% of tax for primary education and 1% of tax for higher secondary education.

3) INCIDENCE OF TAX :

Sr. No. Status Ror Nor Nr
1 Received

Or

Deemed To Be Received

Y Y Y
2 Accrue and Arise

Or

Deemed To Be Accrue And Arise In India

Y Y Y
3 Accrue,Arise And ReceivedOutside India

But

From Business Whose Place Of Effective Management  In India

Y Y N
4 Accrue,Arise

and

Received Outside India

Y N N
5 Accrue, Arise Received Outside India in Preceeding Years Now Remitting To India N N N

NOTE: Meaning of various terms:

a) Received in India: Receipt means first receipt when recipient gets the money under his own control.

b) Deemed to be Received in India:

  • When employers contribution to RPF IS more than 12%.
  • When interest credited to RPF is in excess of 9.5%.
  • Transfer of balance of unrecognized provident fund to RPF.
  • Contribution of employer is under notified pension scheme as in 80CCD.

b) Accrue or arise in India: Any income received in India or the law deems it to be received in India by you or on your behalf OR Any income that accrues or arises in India or income that the law believes accrues or arises in India

c) Deemed to be Accrue or Arise in India: If your answer to any of these is a YES the law will consider these incomes to have accrued in India:-

1. Income from a business connection in India

2. Income from any property, asset or source of income in India

3. Capital gain on the transfer of a capital asset situated in India

4. Income from salary if the services are rendered in India

5. Income from salary which is payable to you by the Government of India for services rendered outside of India when you are an Indian citizen

6. Dividend paid by an Indian company even though this may have been paid outside India

7. Interest, royalty or technical fees received from the Central or the State Government or from specified persons in certain circumstances

4) SPECIFIC PROVISIONS:

A) Section 115F: Related to Long-Term Capital Gains):

For long-term capital gains made from the sale of transfer of these foreign assets, there is no benefit of indexation and no deductions allowed under Section 80

But you can avail an exemption on the profit under Section 115 F when the profit is reinvested back into:

  • Shares in an Indian company
  • Debentures of an Indian public company
  • Deposits with banks and Indian public companies
  • Central Government securities
  • NSC VI and VII issues

B) Section 115H:

Where a person, who is a non-resident Indian in any previous year, becomes assessable as resident in India in respect of the total income of any subsequent year, he may furnish to the  [Assessing] Officer a declaration in writing along with his return of income under section 139 for the assessment year for which he is so assessable, to the effect that the provisions of this Chapter shall continue to apply to him in relation to the investment income derived from any foreign exchange asset being an asset of the nature referred to in sub-clause (ii) or sub-clause (iii) or sub-clause (iv) or sub-clause (v) of clause (f) of section 115C; and if he does so, the provisions of this Chapter shall continue to apply to him in relation to such income for that assessment year and for every subsequent assessment year until the transfer or conversion (otherwise than by transfer) into money of such assets.

NOTE: Sub-clauses of  clause (f) of section 115C are as follows:

(i) shares in an Indian company;

(ii) debentures issued by an Indian company which is not a private company as defined in the Companies Act, 1956 (1 of 1956);

(iii) deposits with an Indian company which is not a private com-pany as defined in the Companies Act, 1956 (1 of 1956);

(iv) any security of the Central Government as defined in clause (2) of section 2of the Public Debt Act, 1944 (18 of 1944);

(v) such other assets as the Central Government may specify in this behalf by notification in the Official Gazette.

5) DEDUCTIONS and EXEMPTIONS:

A) Deductions under house property:

An NRI is allowed to claim a standard deduction of 30%, deduct property taxes, and take benefit of an interest deduction if there is a home loan.

The NRI is also allowed a deduction for principal repayment under Section 80C.

Stamp duty and registration charges paid on the purchase of a property can also be claimed under Section 80C

B) Exemptions In Capital Gains Head:

1. Section 54: You are allowed to claim capital gains exemption on transfer of house property by investing in a house property as per Section 54.

2. Section 54EC :

  • The profit earned is from the sale of a long-term capital asset.
  • The assessee must invest a part of the capital gain or the whole of the gain in specified assets like bonds of NHAI or REC that have a 3 year lock-in period, 6 months from the date of sale of the original asset.
  • Assessee must retain the new asset for a minimum of 3 years.

3. Section 54B: The capital gain earned here will have to be reinvested in the purchase of agricultural land. The same exemption is allowed for long term capital gain as well. The land must be purchased 2 years from the date of sale or transfer. If the capital gain is higher than that of the purchase value of the new agricultural land, then the remaining balance will be taxed. If the gain is less than the purchase price of the new agricultural land, then no tax will be charged.

4. Section 54F: NRIs are allowed to claim exemptions under Section 54F on long-term capital gains.

5. Section 10(38): LTCG on transfer of any equity shares OR units of an equity oriented funds Provided shares are sold on a recognized stock exchange and securities transaction tax has been has been paid.

C) Deductions From Gross Total Income:

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

1) Section 80C:Under this section a deduction of maximum INR 150000 is allowed to individual and HUF,on account of following popular types of investment:

  • Life insurance premium payment
  • Tuition fee payment
  • Principal payment on loan for purchase of house property
  • Investment in ULIPs
  • Deduction from House Property Income

2) Section 80D:

  • Premiums of health insurance of the immediate family and dependents up to INR 25000 for parents and INR 25000 for own family.
  • Further INR 5000 are allowed if individual or parents are senior citizen OR higher senior citizens.
  • Up to a maximum of INR 5000 for preventive health check-ups within overall ceiling of combined deduction of family and parents

3) Section 80E: Deduction of any sum paid as interest 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) Section 80G: Deduction in respect to donations is allowed to all types of assessee who are paying any sum towards certain specified funds/organisations. Proportion of deduction allowable depends upon in which category the sum has been paid.

5) Section 80TTA: Non-resident Indians can claim a deduction on income from interest on savings bank account up to a maximum of Rs 10,000.

6) Section 80EE:Income Tax Deduction for Interest on Home Loan

The deduction allowed under this section is for interest paid on home loan up to maximum Rs 50,000per financial year.

  • The deduction under this section is available only to Individuals – if you are an HUF, AOP, Company or any other kind of tax payer you cannot claim the benefit under this section.
  • This deduction is over and above the Rs 2 lakhs limit under section 24 of the income tax act.
  • To claim this deduction loan must have been taken from a financial institution for purchasing your first residential house property.

Other Conditions :

Besides, being an Individual Taxpayer, there are a set of conditions that you must satisfy before you go on to claim the benefit under this section –

  • This is the 1st house you have purchased
  • Value of this house is Rs 50 lakhs or less
  • Loan taken for this house is Rs 35 lakhs or less
  • Loan has been sanctioned by a Financial Institution or a Housing Finance Company
  • Loan has been sanctioned between 01.04.2016 to 31.03.2017
  • As on the date of sanction of loan no other house is owned by you.

6) RETURNS:

NRI or not, any individual whose income exceeds Rs.2,50,000  is required to file an income tax return in India.

NRIs must file their returns when they:

  • Want to claim a refund
  • Have a loss that they want to carry forward

* July 31st is the last date to file income tax return in India for NRIs.

A) 115G. It shall not be necessary for a non-resident Indian to furnish under sub-section (1) of section 139 a return of his income if—

a) his total income consisted only of

♦ investment income or

♦ income by way of long-term capital gains or both; and

b) the tax deductible at source under the provisions of Chapter XVII-B has been deducted from such income.

NOTE:

Chapter-XVIIB. OF Tax Deduction at Source ( Also Known as Withholding Tax.).

Scheme of this Chapter:

a) Deduct Tax on specified payment at specified Rate.

b) Deposit the same within time limit as prescribed.

c) File the TDS return.

d) Issue the TDS certificate.

e) Processing of TDS return.

f) Consequences for non-compliance.

Case Study:

Mandeep Singh lives and works in the USA. He checked his Form 26AS online and found out that a TDS entry of Rs50,000 is mentioned. This TDS had been deducted at 30% on interest earned by him in his NRO account. Mandeephas no other income in India.Histotal income in India is less than the minimum exempt amount, and therefore he does not have to pay any tax on it

Since no tax is payable by him, he must claim a refund of the TDS deducted on his interest income.

7) OTHER POINTS :

Do note that interest on NRO account is taxable whereas interest earned on NRE account is exempt from tax).

8) TDS PROVISIONS:

Any person responsible for paying to

  • a non-resident, not being a company, or
  • to a foreign company,

any interest (not being interest referred to in section 194LB or section 194LC) or section 194LD or

any other sum chargeable under the provisions of this Act (not being income chargeable under the head “Salaries”) shall,

  • at the time of credit of such income to the account of the payee or
  • at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode,

whichever is earlier, deduct income-tax thereon at the rates in force :

A)    where the person is not resident in India.
Section 192: Payment of Salary Normal Slab Rate
Section 192A: Payment of accumulated balance of provident fund which is taxable in the hands of an employee. 10
Section 194B: Income by way of winnings from lotteries, crossword puzzles, card games and other games of any sort 30
Section 194EE: Payment in respect of deposits under National Savings Scheme 10
Section 194G: Commission, etc., on sale of lottery tickets 5
Section 194LB: Payment of interest on infrastructure debt fund 5
Section 194LC: Payment of interest by an Indian Company or a business trust in respect of money borrowed in foreign currency under a loan agreement or by way of issue of long-term bonds (including long-term infrastructure bond)

Note: With effect from April 1, 2018 benefit of such concessional TDS rate has been further extended by three years. Now TDS at concessional rate of 5% will be applicable for borrowings made before July 1, 2020.

5
Section 194LD: Payment of interest on rupee denominated bond of an Indian Company or Government securities to a Foreign Institutional Investor or a Qualified Foreign Investor

Note: With effect from April 1, 2018 benefit of such concessional TDS rate has been further extended by three years. Now TDS at concessional rate of 5% will be applicable for borrowings made before July 1, 2020.

5
Section 195: Payment of any other sum to a Non-resident
a) Income in respect of investment made by a Non-resident Indian Citizen 20
b) Income by way of long-term capital gains referred to in Section 115E in case of a Non-resident Indian Citizen 10
c) Income by way of long-term capital gains referred to in sub-clause (iii) of clause (c) of sub-Section (1) of Section 112 10
d) Income by way of short-term capital gains referred to in Section 111A 15
e) Any other income by way of long-term capital gains [not being long-term capital gains referred to in clauses (33), (36) and (38) of Section 10] 20
f) Income by way of interest payable by Government or an Indian concern on moneys borrowed or debt incurred by Government or the Indian concern in foreign currency (not being income by way of interest referred to in Section 194LB or Section 194LC) 20
h) Income by way of royalty [not being royalty of the nature referred to point g) above E] payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy 10
i) Income by way of fees for technical services payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy 10
j) Any other income 30
Section 196B: Income from units (including long-term capital gain on transfer of such units) to an offshore fund 10
Section 196C: Income from foreign currency bonds or GDR of an Indian company (including long-term capital gain on transfer of such bonds or GDR) 10
Section 196D: Income of foreign Institutional Investors from securities (not being dividend or capital gain arising from such securities) 20
c) any security of the Central or State Government; 10
d) interest on any other security 10
a) Plant & Machinery 2
b) Land or building or furniture or fitting 10
 
B)    where the company is not a domestic company-
Section 194B: Income by way of winnings from lotteries, crossword puzzles, card games and other games of any sort 30
Section 194E: Payment to non-resident sports association 20
Section 194G: Commission, etc., on sale of lottery tickets 5
Section 194LB: Payment of interest on infrastructure debt fund 5
Section 194LBA(2): Business trust shall deduct tax while distributing any interest income received or receivable by it from a SPV to its unit holders. 5
Section 194LBA(3): Business trust shall deduct tax while distributing any income received from renting or leasing or letting out any real estate asset owned directly by it to its unit holders. 40
Section 194LBB: Investment fund paying an income to a unit holder [other than income which is exempt under Section 10(23FBB)]. 40
Section 194LBC: Income in respect of investment made in a securitisation trust (specified in Explanation of section115TCA) 40
Section 194LC: Payment of interest by an Indian Company or a business trust in respect of money borrowed in foreign currency under a loan agreement or by way of issue of long-term bonds (including long-term infrastructure bond)

Note: With effect from April 1, 2018 benefit of such concessional TDS rate has been further extended by three years. Now TDS at concessional rate of 5% will be applicable for borrowings made before July 1, 2020.

5
Section 194LD:Payment of interest on rupee denominated bond of an Indian Company or Government securities to a Foreign Institutional Investor or a Qualified Foreign Investor

Note: With effect from April 1, 2018 benefit of such concessional TDS rate has been further extended by three years. Now TDS at concessional rate of 5% will be applicable for borrowings made before July 1, 2020.

5
Section 195: Payment of any other sum
a) Income by way of long-term capital gains referred to in sub-clause (iii) of clause (c) of sub-section (1) of Section 112 10
b) Income by way of short-term capital gains referred to in Section 111A 15
c) Any other income by way of long-term capital gains [not being long-term capital gains referred to in clauses (33), (36) and (38) of Section 10] 20
d) Income by way of interest payable by Government or an Indian concern on moneys borrowed or debt incurred by Government or the Indian concern in foreign currency (not being income by way of interest referred to in Section 194LB or Section 194LC) 20
e) Income by way of royalty payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern after the 31st day of March, 1976 where such royalty is in consideration for the transfer of all or any rights (including the granting of a licence) in respect of copyright in any book on a subject referred to in the first proviso to sub-section (1A) of Section 115A of the Income-tax Act, to the Indian concern, or in respect of any computer software referred to in the second proviso to sub-section (1A) of Section 115Aof the Income-tax Act, to a person resident in India 10
f) Income by way of royalty [not being royalty of the nature referred to in point e) above C] payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy—
A. where the agreement is made after the 31st day of March, 1961 but before the 1st day of April, 1976 50
B. where the agreement is made after the 31st day of March, 1976 10
g) Income by way of fees for technical services payable by Government or an Indian concern in pursuance of an agreement made by it with the Government or the Indian concern and where such agreement is with an Indian concern, the agreement is approved by the Central Government or where it relates to a matter included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy—
A. where the agreement is made after the 29th day of February, 1964 but before the 1st day of April, 1976 50
B. where the agreement is made after the 31st day of March, 1976 10
h) Any other income 40
Section 196B: Income from units (including long-term capital gain on transfer of such units) to an offshore fund 10
Section 196C: Income from foreign currency bonds or GDR of an Indian company (including long-term capital gain on transfer of such bonds or GDR) 10
Section 196D: Income of foreign Institutional Investors from securities (not being dividend or capital gain arising from such securities) 20

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