Introduction

The Income Tax Act, 1961 has a separate taxation policy for non resident Indians (NRIs) where they are taxed on the income they earn outside India. The taxation rules and benefits they get are different than those applied to resident Indian citizens. Let us understand the NRI tax slabs and what are the rules of the Capital gains tax for NRIs under the Income Tax Act.

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Who qualifies as NRI

Any citizen who still holds an Indian passport but resides outside India for the purpose of employment or as a crew member on an Indian ship is a non resident Indian. To qualify for NRI status, a citizen should:

• Stay outside India for at least 182 days in the preceding fiscal year

• Be in India for less than 60 days in the previous fiscal year and reside in India for less than 365 days in the previous four years

What are NRIs taxed on?

It is important to note that NRIs are taxed on income that is earned or accrued in India. This applies to:

• Income from salary for services provided in India or income from any business in India

• Capital gains from asset transfers such as sale of property

• Income from any property (rent) based in India

• Any income accrued through fixed deposits (FD), savings accounts, dividends from Indian companies, and bonds etc.

What is tax exempt?

• Any income that is earned outside India

• Any interest accrued in the foreign currency non-resident account (FCNR) and non-residential external (NRE) account

• Any inheritance or gifts received from relatives

• India has Double Taxation Avoidance Agreements (DTAAs) with many countries, so NRIs don’t have to pay taxes on the income earned in India in their host country.

Tax Slab for NRIs

As resident citizens, NRI’s too have the flexibility to choose from existing tax or new tax slabs. They can make informed decisions based on the advantages and drawbacks of each tax slabs. Under the new tax regime, NRIs can’t take benefit of exemptions such as HRA, LTA, medical insurance deductions, PF, insurance premiums, etc.

Here is a detailed look at both tax slabs:

Old Tax Regime (Income Tax Act, 1961)

New Tax Regime

Capital Gain Tax for NRIs

Capital gains are levied when NRIs sell assets such as property or land and securities such as FD, bonds, shares, etc., at a higher price than the buying price. The tax is levied on the profit made. There are two types of capital gain taxes that NRIs could be liable for:

Short-Term Capital Gains (STCG) for assets held for 24 months or less, and for shares held for less than 12 months

Long-term Capital Gain (LTCG) for assets held for 24 months or more, and for shares held for more than 12 months

Tax rate:

• STCG (for assets) are considered a part of NRIs income and is taxed as per the slab rate they qualify for. They get charged 30% TDS when selling the property.

• LTCG (for assets) are taxed at 20% tax and get charged 20% TDS when selling the property.

• STCG (for equity) are taxed at flat 15%

• LTCG (for equity) are taxed at 10% for profits over ₹1 lakh

Good to know information

• NRIs need to get tax certificate for documentation and tax purpose from their asset buyers

• Asset tax liability can be reduced by purchasing certain bonds (REC or NHAI) or reinvesting in another property within a specified period of time.

• Unlike assets, capital gains from equity do not qualify for indexation benefits.

• For equity, capital gains are levied with TDS by brokers when selling NRI held shares

Conclusion

NRI individuals are levied taxes for the income they earn in India, as well as any capital gains accrued on their Indian investments and assets. The tax slabs are easy to understand, where NRIs can choose from the existing or new tax regime. It is imperative to file their tax returns in a timely manner to maintain clean IT records. To avoid any hassles or making erroneous mistakes, NRIs can seek guidance from professional tax consultants to keep their books in order.

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