Non-Resident Indians (NRIs) often face confusion regarding their tax obligations in India. The Income Tax Act, 1961, defines NRIs and outlines their tax liabilities. Here’s a simple guide to help you navigate NRI taxation.
Who is an NRI?
An NRI is an Indian citizen or a person of Indian origin who resides outside India for more than 182 days during the financial year or has lived abroad for 60 days in the current year and 365 days in the preceding four years.
Tax Residency Status:
NRIs are generally not taxed in India on their global income. However, if they earn income from Indian sources, they must pay taxes in India. The taxation depends on whether the income is classified as:
- Income from Salary: If the NRI works in India, their salary is taxable in India.
- Income from Property: Income from rented property in India is also taxable.
- Capital Gains: Gains from selling assets like stocks or real estate in India are taxable.
- Interest Income: Interest earned on savings accounts or fixed deposits in India is subject to tax.
Tax Rates:
NRIs are taxed based on the same slab rates as resident individuals. The Tax Rates are as follows:
- Up to ₹3 lakh: No tax
- ₹3 lakh to ₹7 lakh: 5%
- ₹7 lakh to ₹10 lakh: 10%
- ₹10 lakh to ₹12 lakh: 15%
- ₹12 lakh to ₹15 lakh: 20%
- Above ₹15 lakh: 30%
Example:
Let’s consider Raj, an NRI living in the USA. He has the following income in India during the financial year:
- Rental income from a property: ₹5,00,000
- Interest from a fixed deposit: ₹1,00,000
Total income in India = ₹6,00,000.
Since Raj is an NRI, he will be taxed only on this Indian income. The tax rates applicable to him will be the same as those for a resident Indian.
For example, if Raj falls into the 20% tax bracket, his tax liability will be:
- Tax on rental income: 20% of ₹5,00,000 = ₹1,00,000
- Tax on interest income: 20% of ₹1,00,000 = ₹20,000
Total tax = ₹1,20,000.
Filing Returns:
NRIs are required to file an income tax return in India if their income exceeds the basic exemption limit, which is ₹2,50,000 for individuals below 60 years. It’s essential to file returns on time to avoid penalties.
Conclusion:
Understanding NRI taxation is vital for effective financial planning. By knowing your tax obligations, you can make informed decisions about your investments and ensure compliance with Indian tax laws. Understanding these basics will help NRIs navigate their tax responsibilities more effectively.
– Ketaki Dandekar (Team Arthology)
Read more about NRI Taxation here – https://cleartax.in/s/tax-for-nri