Income Tax for NRIs: Taxable Incomes, Deductions & Filing Procedures

Who qualifies as an NRI?

Income received by an NRI in India or received by someone on their behalf is taxable. If the total income in India exceeds ₹2.5 lakhs, the individual has to file income tax returns in India. ^¹ As discussed above, an NRI only has to pay income tax received in India.

So, the following are the points that an NRI must take care of when filing income tax returns in India:

1. Taxable income for NRIs

   NRIs have to pay taxes on various incomes in India. If their total income exceeds the basic exemption limit, one has to file income tax returns. So, usually, the following income categories are taxable:

   • Income from salary

     If you receive a salary for services rendered in India, it will be taxable. Also, if you are employed under the government of India and are a citizen of India posted abroad, then the income will be taxable in India . ^¹

   • Income from property (home)

     Properties situated in India are taxable for an NRI. It is calculated in the similar manner as that for a resident Indian. NRIs can also claim 30% standard deductions on property tax and under Section 80C for stamp duty and principal repayment. ^¹

   • Rental income

     Income through renting properties in India is also taxable, irrespective of the amount received in a bank account in India or abroad. The renter must deduct 30% TDS (Tax Deducted at Source) before paying the rent. ^¹

   • Income generated from other sources

     Interest generated on a fixed deposit or savings account which are in India is also taxable. You must note that interests accrued on FCNR and NRE accounts are not taxable, while those on NRO accounts are taxable. ^¹

   • Capital gains

     Transferring capital assets which are present in India is subject to taxation. Apart from this, gains on investment in Indian stock market securities are also taxable. ^¹

2. Exemptions/Deductions

   The total income of an NRI is eligible for various deductions and exemptions. It is offered under the following sections of the Income Tax Act of 1961:

   • Section 80C

     Up to ₹1.5 lakhs for life insurance premiums, tuition fees of children, ULIPs premiums, principal repayment of loans taken to purchase house property , and ELSS investments. ^¹

   • Section 80D

     NRIs can claim deductions of up to ₹25,000 for the premium of health insurance. This limit is ₹50,000 for senior citizens. ^¹

   • Section 80E

     The interest that is paid on an education loan is eligible for a deduction u/S 80E. There is no maximum deduction limit under this section. ^¹

   • Section 80G

     Donations done for social causes can be claimed as deductions under Section 80G. ^¹

   • Section 80TTA

     Under this section, NRIs can claim deductions on interest income on savings bank accounts. The limit is set at ₹10,000 for NRIs¹.

3. Upon return to India

   NRIs who wish to move back to India and become ordinary resident Indians must abide by the laws. It is crucial to disclose their foreign assets and income so that income tax laws can be enforced accordingly. Discrepancies in the following may be subject to penalty or lawful actions.

Conclusion

Indians residing abroad or NRIs are subject to income tax laws in India. Although the taxation and exemptions are quite different from those of a resident Indian, it is essential to abide by the laws. Failing to file income tax returns or payment of income tax may be subject to strict legal actions. To ensure a hassle-free process of tax payment, it is essential to understand what is taxable and the exemptions you are eligible for!

FAQs

1. As an NRI, do I have to pay advance tax?

   Yes, if the total tax liability in a financial year exceeds ₹10,000, the individual has to pay advance tax. Failing to do so may attract interest under Section 234B and Section 234C¹.

2. Do NRIs have to pay tax on their entire income?

   No. NRIs have to pay income tax on the income earned in India. This means that income earned globally is not taxed but only the part that's been earned in India¹.

3. Can NRIs avail deductions?

   Yes, NRIs are eligible for various deductions and exemptions like resident Indians. Sections 80C, 80D, 80E, 80G, and 80TTA of the Income Tax Act of 1961 offer several deductions and tax exemptions to NRIs¹.