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Income Tax for NRI : Non-Resident

Income Tax for NRI : Non-Resident

Introduction

Non-Resident Indian (NRI) refers to an individual who is an Indian citizen but currently resides outside India. NRIs typically live abroad for various reasons, such as employment, education, or other personal pursuits.

Non-Resident Individual is an individual who is not a resident of India for tax purposes. In order to determine whether an Individual is a Non-Resident or not, his residential status is required to be determined u/s 6 of the Income Tax Act, 1961.

An NRI can be either an Indian citizen or a person of Indian origin.

 

What are the different classes of residential status prescribed under the Income-tax Law for an individual?

​For the purpose of Income-tax Law, an individual can have any one of the following residential status:

(1) Resident and ordinarily resident in India (also known as resident)

(2) Resident but not ordinarily resident in India

(3) Non-resident

Every year the residential status of the taxpayer is to be determined by applying the provisions of the Income-tax Law designed in this regard and, hence, it may so happen that in one year the individual would be a resident and ordinarily resident and in the next year he may become non-resident or resident but not ordinarily resident and again in the next year his status may change or may remain same.

How to determine the residential status of an Individual?

Step – 1 Determining whether resident or non-resident

An individual will be treated as a Resident in India in any previous year if he / she satisfies any of the following conditions:
1. If he / she is in India for a period of 182 days, or more during the previous year or
2. If he / she is in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year.

An individual who does not satisfy both the conditions as mentioned above will be treated as Non-Resident in that previous year.

However, in respect of an Indian citizen and a person of Indian origin who visits India during the year, the period of 60 days as mentioned in (2) above shall be substituted with 182 days. The similar concession is provided to the Indian citizen who leaves India in any previous year as a crew member or for the purpose of employment outside India.

The Finance Act, 2020, w.e.f. Assessment Year 2021-22 has amended the above exception to provide that the period of 60 days as mentioned in (2) above shall be substituted with 120 days, if an Indian citizen or a person of Indian origin whose Total Income, other than Income from Foreign Sources, exceeds ₹ 15 lakh during the previous year. 

The Finance Act, 2020 has also introduced new Section 6(1A) which is applicable from Assessment Year 2021-22. It provides than an Indian citizen earning Total Income in excess of ₹ 15 lakh (other than income from foreign sources) shall be deemed to be Resident in India if he / she is not liable to pay tax in any country.

Step – 2 Determining whether resident and ordinarily resident or resident but not ordinarily resident

A resident individual will be treated as resident but not ordinarily resident in India during the year if he satisfies following conditions:

(1) He is non-resident in India in 9 out of last 10 years immediately preceding the relevant year; or

(2) His stay in India is for 729 days or less during 7 years immediately preceding the relevant year.

However, w.e.f., Assessment Year 2021-22, the Finance Act, 2020 has inserted the following two more situations wherein a resident person is deemed to be ‘Not Ordinarily Resident’ in India:

a) An Indian Citizen or a person of Indian origin whose total income (other than income from foreign sources) exceeds Rs. 15 lakhs during the previous year and who has been in India for a period of 120 days or more but less than 182 days;

b) An Indian Citizen who is deemed to be resident in India as per new section 6(1A)​.

A resident individual who does not satisfy any of the aforesaid conditions or satisfies only one of the aforesaid conditions will be treated as resident but not ordinarily resident.

In short, following test will determine the residential status of an individual:

  • If the individual satisfy any one or both the conditions specified at step 1 and satisfies any of the conditions specified at step 2, then he will become resident and ordinarily resident in India.
  •  If the individual satisfy any one or both the conditions specified at step 1 and satisfies any of the condition specified at step 2, then he will become resident but not ordinarily resident in India​.
  • If the individual satisfy no conditions satisfied at step one, then he will become non-resident.

Click here to calculate Residential Status

 

Which incomes are charged to tax in India in the hands of a taxpayer?

The following chart highlights the tax incidence in case of different persons:

Nature of income Residential status ​​
ROR (*) RNOR (*) NR (*)
Income which accrues or arises in India Taxed Taxed Taxed
Income which is deemed to accrue or arise in India Taxed Taxed Taxed
Income which is received in India Taxed Taxed Taxed
Income which is deemed to be received in India Taxed Taxed Taxed
Income accruing outside India from a business controlled from India or from a profession set up in India Taxed Taxed Not taxed
Income other than above (i.e., income which has no relation with India) Taxed Not taxed Not taxed

(*)  ROR means resident and ordinarily resident.

RNOR means resident but not ordinarily resident.

NR means non-resident.​

 

What incomes are deemed to have accrue or arise in India?

​​​Following incomes are treated as incomes deemed to have accrued or arisen in India:

  • Capital gain arising on transfer of property situated in India.
  • Income from business connection in India.
  • Income from salary in respect of services rendered in India.
  • Salary received by an Indian national from Government of India in respect of service rendered outside India. However, allowances and perquisites are exempt in this case.
  • Income from any property, asset or other source of income located in India.
  • Dividend paid by an Indian company.
  • Interest received from Government of India.
  • Interest received from a resident is treated as income deemed to have accrued or arisen in India in all cases, except where such interest is earned in respect of funds borrowed by the resident and used by resident for carrying on business/profession outside India or is in respect of funds borrowed by the resident and is used for earning income from any source outside India.
  • Interest received from a non-resident is treated as income deemed to accrue or arise in India if such interest is in respect of funds borrowed by the non-resident for carrying on any business/profession in India.
  • Royalty/fees for technical services received from Government of India.
  • Royalty/fees for technical services received from resident is treated as income deemed to have accrued or arisen in India in all cases, except where such royalty/fees relates to business/profession/other source of income carried on by the payer outside India.
  • Royalty/fees for technical services received from non-resident is treated as income deemed to have accrued or arisen in India if such royalty/fees is for business/profession/other source of income carried by the payer in India.

 

Taxable Income of an NRI

If your status is ‘resident’, your global income (including income earned abroad) is taxable in India.

If your status is ‘NRI’, only your income earned or accrued in India is taxable in India.

NRIs should consider the following sources of income for tax purposes:

  • Salary received or salary for services provided in India
  • Income from residential property in India (whether rented or vacant)
  • Capital gains resulting from the transfer of property or assets in India
  • Income from deposits like fixed deposits or interest on bank savings accounts in India

When do NRIs have to File Tax Returns in India?

Here’s a simple chart illustrating when Non-Resident Indians (NRIs) need to file tax returns in India:

Scenario Filing Deadline Explanation
NRI Income > ₹2.5 lakh July 31 of the assessment year NRIs must file returns if their gross total income received in India exceeds ₹2.5 lakh during a financial year.
Applicable ITR Form
ITR-3 is required if an NRI receives income from business or professional activity carried out in India. ITR 2 can be filed in case the NRI has income other than income from Business and profession.

What is the income tax slab for NRI?

Unlike residents for whose tax rates are classified on the basis of age, no such classification is available for Non-Residents.

Hence, for Non-Residents whether aged
Below 60 Years
Above 60 – 80 Years, and
Above 80 Years
All are taxed uniformly.

Income tax slabs for Non-Resident Indians (NRIs) under both the old and new tax regimes for the financial year 2023-24 (assessment year 2024-25):

  1. Old Tax Regime:
    • The old tax regime follows the existing tax structure with various exemptions and deductions.
    • NRIs can avail the old tax regime if they prefer.
    • Here are the income tax slab rates for NRIs in the old regime:
    Income Range Tax Rate
    Up to Rs. 2.5 lakh Nil
    Rs. 2.5 lakh to Rs. 5 lakh 5%
    Rs. 5 lakh to Rs. 6 lakh Rs. 12,500 + 20%
    Rs. 6 lakh to Rs. 7.5 lakh Rs. 12,500 + 20%
    Rs. 7.5 lakh to Rs. 9 lakh Rs. 12,500 + 20%
    Rs. 9 lakh to Rs. 10 lakh Rs. 12,500 + 20%
    Rs. 10 lakh to Rs. 12 lakh Rs. 1,12,500 + 30%
    Rs. 12 lakh to Rs. 12.5 lakh Rs. 1,12,500 + 30%
    Rs. 12.5 lakh to Rs. 15 lakh Rs. 1,12,500 + 30%
    Above Rs. 15 lakh Rs. 1,12,500 + 30%

    Note: Income tax exemption limit for NRI taxpayers is up to Rs. 2,50,000. NRIs opting for the old tax regime can avail exemptions and deductions like 80C, 80D, 80TTB, and HRA.

  2. New Tax Regime:
    • The new tax regime offers a lower rate of taxation but eliminates most exemptions and deductions.
    • NRIs can choose this regime if they prefer simplicity and lower tax rates.
    • Here are the income tax slab rates for NRIs in the new regime:
    Income Range Tax Rate
    Up to Rs. 2.5 lakh Nil
    Rs. 2.5 lakh to Rs. 5 lakh 5%
    Above Rs. 5 lakh to Rs. 6 lakh Rs. 12,500 + 10%
    Above Rs. 6 lakh to Rs. 7.5 lakh Rs. 12,500 + 10%
    Rs. 7.5 lakh to Rs. 9 lakh Rs. 37,500 + 15%
    Rs. 9 lakh to Rs. 10 lakh Rs. 37,500 + 15%
    Rs. 10 lakh to Rs. 12 lakh Rs. 75,000 + 20%
    Rs. 12 lakh to Rs. 12.5 lakh Rs. 75,000 + 20%
    Rs. 12.5 lakh to Rs. 15 lakh Rs. 1,25,000 + 25%
    Above Rs. 15 lakh Rs. 1,87,500 + 30%

    Note: NRIs under the new tax regime cannot claim exemptions and deductions but benefit from lower tax rates.

Surcharge Rates for NRI’s

  • Surcharge Rate is 10% of income tax payable on total income exceeding Rs 50 lakhs but up to Rs 1crore.
  • The surcharge Rate is 15% of income tax payable on total income exceeding Rs 1crore but up to Rs 2crore.
  • The surcharge Rate is 25% of income tax payable on total income exceeding Rs 2crore but up to Rs 5crore.
  • The surcharge Rate is 37% of income tax payable on total income exceeding Rs 5crore.
  • The surcharge is subject to marginal relief and is applicable to the income of an NRI as well.

Rebate u/s 87A

The rebate under section 87A of a maximum of Rs.12,500 is not allowed to a Non-resident.

 

Do NRIs have to pay advance tax?

  • Yes, NRIs are required to pay advance tax if their tax liability exceeds Rs 10,000 in a financial year.
  • Failure to pay advance tax results in the application of interest under Section 234B and Section 234C

The due dates and the amount payable of advance tax are:

Due Date of Instalment Amount Payable
On or before 15th June Up to 15% of total advance tax
On or before 15th September Up to 45% of total advance tax
On or before 15th December Up to 75% of total advance tax
On or before 15th March Up to 100% of total advance tax

Why should NRI file an Income Tax Return in India?

As an NRI (Non-Resident Indian), there are several reasons why filing an Income Tax Return (ITR) in India is beneficial:

  1. Claiming Refunds: NRIs can receive refunds on Tax Deducted at Source (TDS). If TDS has been deducted from their income, filing an ITR allows them to claim the excess tax paid.
  2. Overseas Expats: NRIs working abroad may have taxes deducted in their host country. By filing an ITR in India, they can claim a refund on taxes paid overseas.
  3. Transfer of Money: When NRIs transfer money from their NRI bank accounts to India, filing an ITR helps establish the legality of these transactions.
  4. Loan Sanctions: NRIs often need loans for various purposes. Having a filed ITR helps in loan sanction processes.
  5. Tax Deductions: NRIs can claim certain tax deductions available under Indian tax laws. For example, deductions related to home loans, education, and health insurance.
  6. Avoiding Notices: Filing an ITR ensures compliance with tax regulations, reducing the risk of receiving notices from the income tax department.
  7. Carry Forward of Losses: NRIs can carry forward losses incurred during investments in India, which can offset future gains.
  8. Reporting Residential Status: Filing an ITR helps NRIs report their residential status and financial transactions accurately.

 

Tax deductions available for NRI

  1. Deductions Available to NRIs under Section 80C:
    • Life Insurance Premium: NRIs can claim the premium paid on insurance policies for themselves, their children, and spouses.
    • Tuition Fee Payment: Deduction can be claimed for tuition fees paid to educational institutions in India for up to two children.
    • Principal Repayment on Home Loan: NRIs with housing loans can claim deductions for the principal amount repaid for purchasing or constructing residential property.
    • Unit Linked Insurance Plan (ULIP): Investment in ULIPs is allowed as a deduction under Section 80C.
    • Stamp Duty and Registration Fees: These expenses related to property purchase are eligible for deduction.
    • Tax Savings Deposit: NRIs can claim deductions for tax-saving fixed deposits.
    • Life Insurance Premium for Children and Spouse: Premiums paid for insurance policies covering children and spouses are eligible.
  2. Deductions Not Available to NRIs under Section 80C:
    • Contribution/Investment in PPF (Public Provident Fund): NRIs cannot claim deductions for PPF contributions.
    • Investment in National Saving Certificate (NSC): NSC investments are not eligible for Section 80C deductions.
    • Post Office 5-Year Deposit Scheme: NRIs cannot claim deductions for investments in this scheme.
    • Senior Citizen Saving Scheme: This scheme is not eligible for Section 80C benefits.
    • Sukanya Samriddhi Scheme: NRIs cannot claim deductions for investments in this scheme.
    • NABARD Bonds: These bonds do not qualify for Section 80C deductions.

    3. As an NRI (Non-Resident Indian), you can claim several deductions related to house property in India. Here’s a list      of deductions available to NRIs under house property:

  1. Standard Deduction: NRIs are eligible for a standard deduction of 30% on the net annual value of the house property. This deduction is similar to what resident taxpayers can claim.
  2. Property Taxes: NRIs can deduct property taxes paid on the house property. This includes municipal taxes or any other local taxes related to the property.
  3. Interest on Home Loan: If you have taken a home loan to purchase the property, you can claim a deduction on the interest paid on the home loan. The maximum limit for this deduction is up to Rs. 2 lakh per financial year

 

Frequently Asked Questions

QIs the residential status of a person relevant for determining the taxability of the income in his hands?

A Yes, the residential status of a person earning income is very much relevant for determining the taxability of such income in his hands. Taxability of any income in the hands of a person depends on the following two things :

(1)  Residential status of the person as per the Income-tax Law; and

(2)  Nature of income earned by him.

Hence, residential status plays a vital role in determining the taxability of the income.​

 

Q – How to determine the residential status of a company?

​A- a company is said to be resident in India in any previous year, if:

(i) it is an Indian company; or

(ii) its place of effective management, at any time in that year, is in India.

 

Q- Can NRI file income tax return in India without Aadhar card?

A-  Aadhaar is not mandatory for NRIs:

 

Q – Which Income tax return form should I fill out if I am an NRI with no income in India?

A- If no income has been earned in India or deemed to be earned in India, then a return is not required to be filed.

 

Q- Is income earned in a foreign country tax-free if brought back to India?

A- If you are a resident of India, your global income will be taxed in India whether it is earned in India or outside India, subject to DTAA(Double Taxation Avoidance Agreement) with the foreign countries. So, any income earned by an NRI outside India will not be taxable in India.

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