If you live abroad, you qualify as a non-resident Indian NRIs for the specific financial year, as per the Income Tax Act. Even though they are not physically present in India, NRIs must fulfill their tax obligations on income earned from sources within India such as salary for services rendered here, interest generated from savings and fixed deposit accounts, or capital gains from sale of Indian assets.
Archit Gupta, CEO of Clear Technology, a fintech company, says NRIs are not tax on foreign income that is not received in India or deemed to accrue or arise here.
NRIs income tax in India
We will examine how NRIs’ income is taxed in India.
Salary income on NRIs tax
In India, NRIs are subject to income tax on their salary if the service is rendered there.
According to Akhil Chandna, Partner at Grant Thornton Bharat, an accounting firm, the income is taxed according to the income tax slabs applicable to residents.
Business and profession-related income tax on NRIs
It is mandatory for NRIs who have business connections in India to pay tax in the country. This tax is calculated based on the total income earned in the country.
Income from rentals tax for NRIs
Rental income from property located in India is taxed the same way for both residents and non-residents (NRIs) regardless of residency status, so there are no distinct rules for taxation of house property in India. No matter if the owner of the property is a resident Indian or an NRI, the rental income is taxable.
Other sources of income
Income from “Other Sources” typically includes interest from fixed deposits and savings bank accounts held in India, dividends, etc.
According to Chandna, interest earned on non-resident external (NRE) and foreign currency non-resident accounts (FCNR) is fully exempt from tax.
For NRIs, income from “Other Sources” is subject to slab rates. However, in many cases, income paid to an NRI is subject to TDS at a flat rate of 30% plus the applicable surcharge and health and education cess.
Gains on investments are taxed
For NRIs, capital gains tax provisions are similar to those for resident individuals, except for the application of TDS provisions. Capital gains are taxable depending on the holding period and the type of investment sold.
Money remitted to India is taxed
In a foreign country, where the NRI’s income is taxable, the money being remitted may be subject to income tax. Since the NRI’s remittance is already taxable in the foreign country, it is not subject to income tax in India. Chandna says there is no tax liability if the money is remitted to the NRI’s family in India for personal use, such as living expenses or education.
Tax reduction strategies for NRIs
Tax deductions are available to NRIs under the Indian Income Tax Act, including deductions under Section 80C for investments in specified financial instruments, Section 80D for health insurance premiums, Section 80G for charitable donations, and Section 24 for home loan interest.
Chandna says NRIs can minimize capital gains tax by investing in specific assets, such as residential properties and specific bonds.
If your PAN is not working, what should you do?
Since NRIs do not need to obtain an Aadhaar card in India, they are not required to link their PANs with their Aadhaars. There is, however, a chance that some NRIs will no longer be able to use their PANs after June 30. This is because the Income Tax (IT) Department may not update the residential status of these individuals as “Non-Residents”.
“The IT Department has clarified that NRIs whose PANs have become inoperative must contact their jurisdictional AOs with supporting documents (such as a passport copy) to prove they are NRs in India,” said Chandna.
It is imperative that NRIs carefully consider their tax liabilities in both India and the country where they reside, as double taxation may result if they are taxed in both countries on the same income.
A tax treaty (DTAA) between India and the country where NRIs reside or the foreign tax credit provisions in Indian tax law may provide relief from double taxation for NRIs.