Income Tax New Rules for NRIs In India:
Income Tax New Rules for NRIs In India
Non-resident Indians ( NRIs ) classified as a Resident but Not Ordinarily Resident (RNOR) will be taxed on their foreign passive income. For NRIs with rental income, dividends, or interest earnings abroad, this would mean a higher tax liability in India
1. What is an NRI ?
An
NRI
(Non-Resident Indian) is an Indian citizen or person of Indian origin who resides outside India for more than
182 days
in the preceding financial year. The key factors to determine
NRI
status include:
- Duration of Stay : A person is considered an NRI if they have stayed in India for less than 182 days during the previous financial year.
- Intent of Stay : If the individual stays outside India for employment or business purposes, they are generally treated as an NRI .
-
2. Benefits of Being an
NRI
Being an
NRI
offers several advantages, particularly in terms of tax, finance, and investment opportunities:
- Exemption from Indian Tax on Global Income : NRIs are taxed only on income earned in India. They are not subject to tax on global income (i.e., income earned outside India) in India.
- Investment in India : NRIs have access to various investment options such as:
- NRE (Non-Resident External) Account : Income in NRE accounts is exempt from Indian taxes.
- NRO (Non-Resident Ordinary) Account : Income in NRO accounts is subject to Indian tax but can be repatriated after paying taxes.
- Tax Benefits on Investment : NRIs can invest in Indian stocks, mutual funds, and real estate, benefiting from capital appreciation and dividends.
-
Repatriation of Funds: NRIs can repatriate their funds freely from India to their country of residence, subject to certain guidelines and after fulfilling tax obligations.
𝐒𝐭𝐚𝐲 𝐂𝐨𝐦𝐩𝐥𝐢𝐚𝐧𝐭 𝐰𝐢𝐭𝐡 𝐍𝐑𝐈 𝐓𝐚𝐱 𝐋𝐚𝐰𝐬—𝐁𝐨𝐨𝐤 𝐚 𝐅𝐫𝐞𝐞 𝐂𝐨𝐧𝐬𝐮𝐥𝐭𝐚𝐭𝐢𝐨𝐧 𝐓𝐨𝐝𝐚𝐲!
3. Tax Liability of NRIs on Indian Income
The tax liability for
NRIs
on income sourced in India includes:
- Income from Salary : If an NRI earns a salary in India, the income will be taxed in India under the Income Tax Act . Tax is deducted at source (TDS).
- Income from Property : Rental income or income from the sale of property in India is taxable in India. The TDS rate is typically 30% for long-term capital gains and 15% for short-term capital gains.
- Income from Investments : NRIs are also liable to pay taxes on interest earned from investments in India (e.g., fixed deposits, savings accounts, and bonds). The tax rate on interest earned is usually 30%, unless exempted under applicable double taxation agreements (DTAA).
- Capital Gains Tax : NRIs are taxed on capital gains from the sale of assets in India (like shares, mutual funds, or property):
- Short-term capital gains (STCG) : Taxable at 15% for listed securities and 30% for other assets.
- Long-term capital gains (LTCG) : Taxed at 20% with indexation benefits for assets like property or securities held for more than 2-3 years.
-
4. Tax on Foreign Income for
NRIs
- Foreign Income for Residents: If a person becomes a resident in India, they will be liable to pay tax on global income, which includes foreign income as well.
- Double Taxation Avoidance Agreement (DTAA): If NRIs are paying tax in both India and their country of residence, they may benefit from DTAA between India and the foreign country, which helps in avoiding double taxation.
5. TDS on Income for NRIs
Tax Deducted at Source (TDS) is applicable to most types of income earned by NRIs in India, and the rates may vary depending on the nature of the income. Here are a few examples:
- Interest Income: TDS at 30% on interest earned on NRO accounts.
- Rental Income: TDS at 30% on rental income.
- Dividends: TDS at 20% on dividends from Indian companies (in certain cases).
NRIs can apply for lower TDS rates by submitting Form 15CA/15CB or under the DTAA with their home country.
6. Tax Filing for NRIs
NRIs are required to file income tax returns in India if their total income exceeds the basic exemption limit. However, if the only income earned is through TDS (Tax Deducted at Source), and there is no further tax liability, they may not be required to file a return.
7. Key Points to Remember
- NRI Status: Your client needs to stay out of India for more than 182 days in the last financial year to qualify as an NRI.
- Income in India: Income from sources in India (salary, property, investments) is taxable in India.
- Foreign Income: Foreign income is not taxed in India for NRIs.
- Tax Treaty: NRIs should check if there is a Double Taxation Avoidance Agreement (DTAA) between India and their country of residence to avoid paying taxes twice on the same income.
- TDS: NRIs should ensure that TDS is correctly applied to their Indian income and may claim refunds if applicable.