A person will only be considered a resident of India for a financial year if he is in India for 182 days (6 months) or if you are in India for 60 days in the previous year and have lived for 365 days in the past four years. For an Indian citizen working abroad and a member of a crew on an Indian ship or a PIO (Person of Indian Origin) only the first condition is applicable. An NRI is a person who does not meet these conditions.
The income tax of an NRI depend on his residential status for the year. If the status of the person is resident i.e. he fulfills the above conditions, his global income is taxable in India and if his status is NRI then only his income in India is taxable. Interest earned on an NRE and FCNR account is tax free while Interest on NRO account is taxable for an NRI.
Filing Income Tax Return in India
Any individual (including NRI), whose income exceed 2.5 Lakh is required to file income tax return in India. NRI should file a return when they want to claim a refund or when they want to carry forward the loss incurred. If the income of a person is solely by the sale of an asset and TDS has been deducted on it, then there is no need to file the income tax return for that year.
The last date for Income Tax Return Filing is 31st July.
If the tax liability of an NRI exceeds Rs. 10,000, then he is required to pay advance tax and if the tax is not paid on time, interest is applicable on it according to Section 234B and 234C.
Taxable income for NRIs
• The salary income of a person is taxable if he receives his salary in india. Therefore if the salary of an NRI is directly received in his Indian account, then his salary will be subjected to Indian tax laws.
• If an NRI owns a property in India, then the income from that property will be taxable in the same manner as a resident of India. Although an NRI is allowed to claim a standard deduction of 30%, deduction in property taxes and interest deduction on home loans. NRIs are also allowed deduction for principle repayment and claim on Stamp duty and registration charges under section 80C.
• A tenant who pays his rent to an NRI should deduct TDS (Tax Deducted at Source) at 30%. This income can be received in the Indian account of the NRI or the account of the country he is currently residing.
• Interest from fixed deposit savings account and NRO account is taxable while interest on NRE and FCNR account is tax free.
• If an NRI earns money from a business which is controlled or set up in India then his income is taxable.
• Any income earned by an NRI by transfer or sale of property or investment in shares is taxable in India.
• An NRI is taxed at 20% if he invests in Indian assets. If the only source of Income for the NRI is this special investment, then he is not required to file ITR in India.
Deductions and exemptions for an NRI
Most of the deductions under section 80C are also applicable for NRIs. The following deductions are applicable for an NRI:-
• The deductions under 80C applicable to NRIs are :-
1. Life Insurance Premium Payment of an NRI.
2. Tuition fees paid in school or college for the children.
3. Repayment of loan taken for buying or constructing a residential property.
4. Investment in Equity Linked Savings Scheme (ELSS).
• An NRI can claim the deductions available to a resident for a house purchased in India, property tax paid and the interest on home loan.
• According to section 80D, an NRI can claim deductions for payment of the premium of Health Insurance of self, spouse, children, and parents.
• According to section 80E deductions can be claimed for education loans.
• Donation for social causes is also eligible for tax deductions under section 80G.
• According to section 80TTA, like Indian residents, an NRI can also claim deduction on income from interest on saving bank account.
NRIs who have recently moved back to India
Those NRIs who have recently moved back to India assume RNOR status he has been an NRI in 9 out of 10 previous financial years. Or he has lived in India for 729 days (2 years or less in the previous 7 financial years.
The Income Tax department allows these RNORs to enjoy the exceptions of an NRI for a period of 2 years after their return after which they are treated as normal residents of the country.
Residents with global Income
If an Indian resident earns income outside India, then his entire income is taxable, irrespective of whether it is earned inside or outside the country. If the income is also taxable in the other country, the benefits of the Double Tax Avoidance Agreement (DTAA) can be taken. Under DTAA, two methods can be used to claim tax relief. They are the exemption method and tax relief method. Under Exemption Method, Income is taxed in only one country and exempted in other whereas, in Tax Credit Method, the income is taxed in both the countries but tax relief can be claimed in the country of residence.