Income tax for NRIs: rules, exemptions and deductions
  • in

  • ITR Filing

4 Mins

Income Tax for NRIs - Rules, Exemptions & Deductions

Tue Mar 21 2023

The taxation system in India is a crucial element of the country's economy. Various taxes are applied to the goods and services that citizens use. Some of the most prevalent types of taxes are income, service, property, and tax deducted at source (TDS).

The fundamentals of the Indian Income Tax Act 1961 apply to both Indian citizens and Non-Resident Indians (NRIs). Accordingly, taxes on capital gains accrued in India from shares, mutual funds, term deposits, and rental income tax for NRI are applicable.

Who is a Non-Resident Indian (NRI)?

An individual's residential status is established based on how long they have resided in India. The criteria that determine an NRI's residential status are listed below:

  • A person who spent less than 182 days in India during the financial year
  • A citizen of India who is working or living abroad for employment/business purposes

Understanding NRIs Taxable Income

NRIs in India only need to pay taxes when the Income Tax Act of 1961 guidelines apply to them. As a result, income tax for NRI is levied if their income from mutual funds, residential property, capital gains, and term deposits exceeds the excluded amount.

NRIs might earn money in India from various sources subject to tax on foreign income in India. The following listed are different sources of income earned by a Non-Resident Indian:

Salaried Income

If an NRI receives a salary income for services provided in India, their income will be taxable under Income Tax Act 1961.

Income Earned From Business & Profession

Any revenue generated from a business/organization established or operated in India by a non-resident Indian will be considered income and subsequently taxed in India.

Capital Gains Income

Income originating from India-based capital goods such as house property, stocks, government bonds, and gold assets are subjected to taxation in India.

House Property Income

An NRI who owns a house or residential property in India must pay taxes on the rental income they receive from the tenant.

Income Accrued from Other Sources

NRIs must pay taxes on any other income they receive, such as interest on savings accounts, NRO accounts, and fixed deposits maintained in Indian banks. 

Taxation Rules & Provisions Levied for NRIs

Several provisions and new rules for NRI in India are applicable under the guidelines and regulations of the Income Tax Department. There are several considerations to make, though:

  • NRI income tax slab rates are based solely on income without considering age, gender, or other factors
  • The NRIs' earnings are subjected to TDS regardless of the threshold amount.
  • Tax filing usually is only required if an NRI's income is covered by Section 115G of the Income Tax Act of 1961.
  • The Form 13 income tax for NRI is for lower or NIL rate TDS certificates or certificates exempting taxpayers from paying taxes.
  • No economic deductions apply to investment incomes (except in certain circumstances)

Tax Exemptions Eligible for NRIs

The following is a list of non-taxable income for non-resident Indians (NRIs):

  • Receiving interest on Foreign Currency Non-Resident (FCNR) and Non-Resident External (NRE) accounts.
  • Interest earned on government saving bonds and certificates
  • Dividends earned from Indian company equities
  • Capital gains from listed stock shares over the long run
  • Long-term capital gains from equity-oriented mutual funds 

Tax Deductions Entitled for NRIs

NRIs are entitled to similar deductions from their gross income as Indian residents do. These taxable deductions that income tax for NRI returning to India are allowed to are discussed below:

  • Deduction from House Property Income: Tax deductions for interest paid on a home loan for an empty home are allowed up to $2,000 per year.
  • Deductions under Section 80C: A maximum deduction of ₹1,50,000 is permitted under this section. The clause permits NRIs to deduct expenses such as life insurance premiums, educational costs, investments in ULIPs, etc. 
  • Deductions under Section 80D: NRIs may deduct the cost of health insurance premiums for themselves and their family/parents in India. For health examinations, a maximum deduction of 5,000 is permitted.
  • Deductions under Section 80E: The interest paid on student loans for family members for higher education over eight years is applicable for removal.
  • Deduction under Section 80G: A deduction is applicable if the appropriate donations are highlighted in this section.
  • Deductions under Section 80TTA: For interest received through a savings account, there is a ₹10,000 maximum deduction limit.

Final Words

Understanding whether a person qualifies as an NRI under the rules outlined by the Indian Income Tax Act 1961 is vital when evaluating taxable income. To avoid paying too much in taxes at any point, considering eligible exemptions and deductions is necessary.

If you need help filing income tax for NRI, you must opt for the most convenient method of online tax filing. NRIs can file their tax returns online using the online portal of the Indian Income Tax Department after carefully examining specific conditions and rules.

byKiruthika AS

Simplify Your Taxes with Live ITR Filing with TaxNodes
  • in

  • Tax

Sat Jul 22 2023

Simplify Your Taxes with Live ITR Filing with TaxNodes

byTaxNodes Team

TaxNodes End of Season Sale

Sat Jul 15 2023

TaxNodes End of Season Sale

byTaxNodes Team

Implementing Post-Audit Corrective Measures - Addressing Discrepancies

Thu Jul 06 2023

Mastering Post-Audit Actions | TaxNodes

byAditi Mendiratta

Freelancers and Gig Economy Workers - Tax Planning Tips

Thu Jun 29 2023

Tax Planning Tips for Freelancers

byAstik Dubey

What are Pegged Value Crypto Assets?

Tue Jun 13 2023

What are Pegged Value Crypto Assets?

byAditi Mendiratta

Taxes on long term capital gains (LTCG)

Tue May 23 2023

How Is 10 Percent LTCG Tax Calculated?

byRhea Tripathy

Are tax calculators accurate?

Wed May 17 2023

Are Tax Calculators Accurate?

byRhea Tripathy

What is form 16? How to download form 16?

Tue May 16 2023

What is Form 16? How to download Form 16?

byKiruthika AS

Tax on crypto staking

Mon May 15 2023

Is Staking Crypto Taxable?

byKiruthika AS

10 tips to avoid getting a tax notice in India

Wed May 10 2023

10 Tips to Avoid Getting a Tax Notice in India

byRhea Tripathy

7 myths about income tax in India debunked

Mon Apr 17 2023

7 Myths About Income Tax in India Debunked

byRhea Tripathy

What is AIS? How to download AIS?

Fri Mar 24 2023

What is AIS? How to Download AIS?

byRhea Tripathy

What is 26AS? How to download 26AS?

Fri Mar 17 2023

What is 26AS? How to Download 26AS?

byRhea Tripathy

What is a personal loan emi calculator

Wed Mar 15 2023

Personal Loan EMI Calculator

byKiruthika AS

What is NFT and how does it work in blockchain

Mon Feb 13 2023

What is NFT? How does it work in Blockchain?

byMoumita Mitra