A guide to tax implications for NRIs
1. How do I Determine My Residential Status?
You are considered an Indian resident for a financial year: i. When you are in India for at least 6 months (182 days to be exact) during the financial year ii. You are in India for 2 months (60 days) for the year in the previous year and have lived for one whole year (365 days) in the last four years If you are an Indian citizen working abroad or a member of a crew on an Indian ship, only the first condition is available to you – which means you are a resident when you spend at least 182 days in India. The same is applicable to a Person of Indian Origin (PIO) who is on a visit to India. The second condition is not applicable to these individuals. A PIO is a person whose parents, or any of his grandparents were born in undivided India. You are an NRI if you do not meet any of the above conditions. For FY 2019-20 if an individual has come to India on a visit before 22nd March, 2020 and a) has been unable to leave because of lockdown on or before 31st March, 2020, period of stay from 22nd to 31st March shall not be considered. b) has been quarantined due to Covid19 on or after 1st March, 2020 and departed on evacuation flight on or before 31st March, 2020 or unable to leave India his period of stay from the beginning of quarantine to 31st march shall not be considered. c) has been departed on a evacuation flight on or before 31st March, 2020, period of stay from 22nd March 2020 to date of departure shall not be considered
a. Is My Income Earned Abroad Taxable?
An NRI’s income taxes in India will depend upon his residential status for the year. If your status is ‘resident,’ your global income is taxable in India. If your status is ‘NRI,’ your income which is earned or accrued in India is taxable in India. Salary received in India or salary for service provided in India, income from a house property situated in India, capital gains on transfer of asset situated in India, income from fixed deposits or interest on savings bank account are all examples of income earned or accrued in India. These incomes are taxable for an NRI. Income which is earned outside India is not taxable in India. Interest earned on an NRE account and FCNR account is tax-free. Interest on NRO account is taxable for an NRI.
b. Am I Required to File My Income Tax Return in India?
NRI or not, any individual whose income exceeds Rs.2,50,000 is required to file an income tax return in India.
a. Is My Income Earned Abroad Taxable?
An NRI’s income taxes in India will depend upon his residential status for the year. If your status is ‘resident,’ your global income is taxable in India. If your status is ‘NRI,’ your income which is earned or accrued in India is taxable in India. Salary received in India or salary for service provided in India, income from a house property situated in India, capital gains on transfer of asset situated in India, income from fixed deposits or interest on savings bank account are all examples of income earned or accrued in India. These incomes are taxable for an NRI. Income which is earned outside India is not taxable in India. Interest earned on an NRE account and FCNR account is tax-free. Interest on NRO account is taxable for an NRI.
b. Am I Required to File My Income Tax Return in India?
NRI or not, any individual whose income exceeds Rs.2,50,000 is required to file an income tax return in India.
c. Do NRIs Have to Pay Advance Tax?
If your tax liability exceeds Rs 10,000 in a financial year, you are required to pay advance tax. Interest under Section 234B and Section 234C is applicable when you don’t pay your advance tax.
2. How can NRIs Avoid Double Taxation?
NRIs can avoid double taxation (meaning: getting taxed on the same income twice in the country of residence and India) by seeking relief from DTAA between the two countries. Under DTAA, there are two methods to claim tax relief – exemption method and tax credit method. By exemption method, NRIs are taxed in only one country and exempted in another. In tax credit method, where the income is taxed in both countries, tax relief can be claimed in the country of residence.
3.FAQs
- When are you considered as a non-resident Indian (NRI)?A person who is not a resident of India is considered to be a non-resident of India (NRI). You are a resident if your stay in India for a given financial year is : 182 days or more or 60 days or more and 365 days or more in the 4 immediately preceding previous years. In case you do not satisfy either of the above conditions, you will be considered an NRI.
- I am an NRI. I have rental income from a flat that I own in India. I am employed in the US and I receive salary income in the US. What income should I offer in India? Since you are an NRI, only the income that accrues to you in India will be taxable. You would not be taxed on your global income. Accordingly, you will have to pay taxes in India on the rental income from the flat situated in India. However, you will not be liable to pay any taxes on the salary income that you receive from the USA.
- When should an NRI file his return of income in India? An NRI, like any other individual taxpayer, must file his return of income in India if his gross total income received in India exceeds Rs 2.5 lakhs for any given financial year. Further, the due date for filing return for an NRI i also 31 July of the assessment year.
- I am an NRI aged 65 years. Do I have to file a return even if my gross total income is Rs 2.8 lakhs during a year from India? The basic exemption of Rs 3 lakhs and Rs 5 lakhs is available only for resident senior citizens and resident super senior citizens. Hence, as an NRI, even if you are a senior citizen, the moment your income in India exceeds Rs 2.5 lakhs, you will be liable to file your return of income in India.
- Should taxes be deducted when payments are being made to NRIs? Specified payments in the nature of rent, professional or technical fees etc made to an NRI requires tax deduction at source by the individual making the payment. The individual must obtain a TAN for himself in order to deduct taxes at source. Further, Form 15CA (to be filed by the person making the payment) and Form 15CB (to be obtained from a Chartered Accountant) are also required for making payments to non-residents. Read our detailed article on Form 15CA and 15CB for further clarity.
- Is an NRI taxable on the income he receives in India, in his country of residence? What is the role of the Double Taxation Avoidance Agreements (DTAA) here?An NRI in receipt of income in India is taxable in India on such income i.e. India as a source state has the right to tax such income. However, the country of which such NRI is a resident, will also have a right to tax such income as it is the residence state. In the process, the NRI will end up getting taxed twice on the same income. To overcome this, India has entered into DTAAs with various countries which help eliminate such double taxation by allowing the taxpayer to claim credit for foreign taxes paid while filing their return of income in the home country.
- I am an NRI. Will I be subject to capital gains tax if I sell a flat that I own in India? Yes. You will be liable for capital gains tax in India upon sale of your flat. Further, the purchaser himself must deduct taxes on the quantum of gains you make. The rate of tax deduction for a long term asset would be 20% while taxes at slab rates would be deducted at source if the asset is a short term asset.
