Introduction:
An individual with Indian citizenship who lives abroad and spends less than 182 days in India during a financial year is termed a Non-Resident Indian (NRI) for taxation purposes. A basic obligation all NRIs have is fulfilling their income tax liabilities. If, within a financial year, an NRI earns any income in India, they must file their income tax returns (ITR). The Indian Income Tax Act of 1961 governs this and the types of income taxable in India.
In this article, you will be introduced to five important aspects of income taxability that NRIs should keep in mind while filing their ITR.
Taxability of Incomes in India for NRIs
All Indian residents are obligated to pay tax on incomes earned or accrued both in India and abroad, while NRIs are exempted from taxation on foreign income. Regardless of whether you are an NRI or resident, if your annual income is over ₹ 2.5 lakh, it is mandatory to file ITR. The deadline for doing this is 31st July of the concerned assessment year.
Now, let's examine how incomes from the following five categories are taxed for NRIs in India.
1. Income from Salary
Income received by an NRI for services rendered in India is taxable. This includes any income received for services rendered outside India, provided they come from an Indian employer or are received in India. This income is subject to income tax as per the Indian taxation rates.
2. Income from Capital Gains
Any income from the sale of assets located within India is considered taxable income for NRIs. This includes income arising from the sale of mutual funds, stocks and bonds, real estate shares, and so on. The tax treatment depends on whether it is a short—or long-term capital gain. NRIs can benefit from long-term capital gains on certain assets through indexation.
3. Income from Rent
If rental income is received from any property situated within India, it is deemed taxable for NRIs. Tax Deducted at Source (TDS) is also applicable to any rental income if it exceeds a certain limit and is taxed according to a marginal slab rate. All NRIs must declare their rental income and pay taxes accordingly, while a standard deduction of 30% can also be claimed.
4. Income from Gifts
Depending on whether an NRI receives a gift from a relative or a non-relative, its taxability varies. For instance, any money received from a relative (spouse, parent, sibling, children) as a gift is tax-free, but anything exceeding ₹50,000 from a non-relative is taxable. Any property or money received as a gift on marriage or through will is exempt.
5. Income from Interest and Dividend
Any income received by an NRI as interest on fixed deposits, bonds, bank deposits, and so on is taxable in India in the form of 30% TDS by banks. Similarly, a 20% TDS is charged on dividend income received by NRIs. However, NRIs can claim an exemption on any interest income from FCNR (Foreign Currency Non-Resident) or NRE (Non-Resident External) accounts.
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NRIs must file an ITR to claim tax refunds for excess TDS deducted, such as on rental income or bank deposits. Due to India's Double Taxation Avoidance Agreements (DTAAs) with various countries, they can claim relief on taxes paid in India on any income that's taxable in their home country.
Keeping all these considerations in mind is crucial while filing ITR because tax evasion is a punishable offence in India with severe monetary fines or imprisonment of up to seven years.
Conclusion:
To effectively manage your income tax liability in India as an NRI, evaluating your income sources, residency status, and tax treaties is important. Being prepared and organised before the ITR deadline ensures you can avoid unnecessary penalties and fulfil your obligations accurately. However, it is recommended to seek professional guidance to ensure compliance and avoid any legal troubles.
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