Criteria for NRI Status
Before we dive into what the tax implications are for NRIs, you have to first understand what criteria makes you an NRI.
NRI: A person who is not a resident of India is considered to be a non-resident of India (NRI). You are a resident if your stay in India for a given financial year is: 182 days or more, or 60 days or more and 365 days or more in the 4 immediately preceding previous years. In case you do not satisfy either of the above conditions, you will be considered an NRI.
The term NRI is applicable for people who reside outside India for various purposes like employment, business, vocation or any other circumstances, which clearly indicate their intention to stay out of India for an uncertain time period.
According to the Foreign Exchange Management Act, 1999, the definition of a Non-Resident India is mentioned under Section 2(w). A person resident outside India is defined as a person who is not resident in India.
Tax implications for NRIs
#1 Is Income earned abroad taxable?
An NRI’s income taxes in India will depend on their residential status for the year.
- If your status is ‘resident,’ global income is taxable in India. If your status is ‘NRI,’ your income which is earned or accrued in India is taxable in India.
- Salary received in India or salary for service provided in India, income from a house property situated in India, capital gains on transfer of assets situated in India, income from fixed deposits or interest on savings bank account are all examples of income earned or accrued in India. These incomes are taxable for an NRI.
- Income which is earned outside India is not taxable in India. Interest earned on an Non-Resident External (NRE) account and Foreign Currency Non-Resident Account (FCNR) is tax-free. Interest on Non-Resident Ordinary (NRO) accounts is taxable for an NRI.
#2 What earnings do I have to file?
NRI or not, any individual whose income exceeds Rs.2,50,000 is required to file an income tax return in India.
#3 When is the last date to file?
While the deadline for ITR filing is 31 July of each year, due to the COVID-19 pandemic, the deadline was extended by the Central Board of Direct Taxes (CBDT) for the financial year 2019-2020 (FY20) to 31 December 2020.
#4 Do NRIs Have to Pay Advance Tax?
If an NRIs tax liability exceeds Rs.10,000 in a financial year, they are required to pay advance tax.
Taxable Income for an NRI
Your salary income is taxable when it is received in India by you or someone on your behalf. Therefore, if you are an NRI and you receive your salary directly to an Indian account it will be subject to Indian tax laws.
#1 Income from Salary
As an NRI if your salary is paid towards services provided by you in India, it will be taxed in India, despite where you receive your income.
If your employer is the Government of India and you are a citizen of India, income from salary, if your service is rendered outside India is also taxed in India.
Note that income of Diplomats, Ambassadors are exempt from tax.
#2 Income from House Property
Income from a property which is situated in India is taxable for an NRI. The calculation of the taxable amount is the same as that of a resident Indian.
An NRI is allowed to claim a standard deduction of 30%, deduct property taxes and take advantage of an interest deduction if there is a home loan. An NRI is also allowed a deduction for principal repayment under Section 80C.
Stamp duty and registration charges paid on the purchase of a property can also be claimed under Section 80C.
#3. Rental Payments to an NRI
A person making a payment to a Non-Resident Indian has to submit Form 15CA.
This form has to be submitted online. In some cases, a certificate from a chartered accountant in Form 15CB is required before uploading Form 15CA online. In Form 15CB, a CA certifies details of the payment, TDS rate and TDS deduction as per Section 195 of the Income Tax Act, if any Double Tax Avoidance Agreement is applicable and other details of nature and purpose of the remittance.
Form 15CB is not required when:
- Remittance does not exceed Rs 5,00,000 (in total in a financial year). Only Form 15CA has to be submitted in this case.
- If lower TDS has to be deducted and a certificate is received under Section 197 for it or lower TDS has to be deducted by order of the AO.
- Neither is required if the transaction falls under Rule 37BB of the Income Tax Act, where it lists 28 items.
In all other cases, if there is a remittance outside India, the person who is making the payment will need to take a CA’s certificate in Form 15CB and after receiving the certificate, submit Form 15CA to the government online.
A tenant who pays rent to an NRI owner must remember to deduct TDS at 30%. The income can be received to an account in India or the NRI’s account in the country he is currently residing.
#4 Income from Other Sources and Business in India
Interest income from fixed deposits and savings accounts held in Indian bank accounts are taxable in India. Interest on NRE and FCNR accounts are tax-free. Interest on NRO accounts is fully taxable.
Furthermore, any income earned by an NRI with a business set-up or controlled in India will be taxed in India.
#5 Income from Capital Gains
Capital gain on transfer of capital asset which is situated in India is taxable in India. Capital gains on investments in India in shares, securities are also taxable in India.
If you sell a house property and have a long-term capital gain, the buyer shall deduct TDS at 20%. However, you are allowed to claim capital gains exemption by investing in a house property as per Section 54 or investing in capital gain bonds as per Section 54EC.
#6 Special Provision Related to Investment Income
When an NRI invests in certain Indian assets, they are taxed at 20%.
If the special investment income is the only income the NRI has during that financial year, and TDS has been deducted on that, then such an NRI is not required to file an income tax return.
Deductions and Exemptions for NRIs
#1 Deductions from House Property Income for NRIs
NRIs can claim all the deductions available to a resident Indian from income from house property for a house purchased in India.
#2 Principal repayments on loan for the purchase of a house property
Deductions are allowed for repayment of loan taken for buying or constructing residential house property. Also allowed for stamp duty, registration fees, and other expenses for the purpose of transfer of such property to the NRI.
The Easiest Way for NRIs to Handle Property Taxes
A property management firm like PropTech Solutions can help you with your property taxes and documentation. A property management firm will not only help you stay updated and safeguard your property legally but provide an end-to-end solution to take care of all aspects of looking after a property.