Updated 16/07/2022 – In this article, we will discuss the Tax Planning for NRIs in detail. We will be modifying it when there are changes. So that you have up to date knowledge on Tax Planning for NRIs. Specific questions can be asked in the comments section below on Taxation for NRIs. So here we start with the updated & detailed Income Tax Planning Guide for NRIs.
Steps for Tax Planning for NRIs
Step 1 – Determining Residential Status?
You know the FEMA & Income Tax have separate provision to identify you as NRI or a Resident. In a nutshell, you are considered an Indian resident for a financial year if you meet these conditions:
- When you are in India for at least 6 months (182 days to be exact) during the financial year
- You are in India for 2 months (60 days) for the year in the previous year and have lived for one whole year (365 days) in the last four years
If not? You are an NRI.
Update 02 Feb 2020. The Budget of 2020 has changed this definition. (Details Post Here – How Budget 2020 Impacts NRIs)
You can read the detailed post here.
Step 2: Know if Income Earned Abroad or In India is Taxable?
If you are a resident, your global income is taxable in India.
If you qualify for NRI status, only your income which is earned or accrued in India is taxable in India.
The dates on Passport are followed strictly to assess the time spent in India. If IT department challenges/denies your non-residency you may end up paying taxes like a resident. Be clear that if your status is ‘resident Indian,’ your global income is taxable in India. If your status is ‘NRI,’ your income earned or accrued in India is only taxable. So residency test is the first step to determine taxability.
Some Examples of Tax Planning for NRIs
- Salary received in India
- Income from a house property which is situated in India
- Capital Gains on the transfer of assets (Land, Shares Etc ) situated in India
- Income from FDs or savings bank’s interest
Income which is earned outside of India is not taxable in India.
NRE account and FCNR account interest are tax-free but Interest on NRO account is taxable for an NRI in India.
Step 3 – Should NRI File Income Tax Return in India?
If you an NRI whose income exceeds Rs.2,50,000 is required to file an income tax return in India. Simple?
Also, in case you have paid excess TDS, you need to file ITR for that financial year to get a refund even if your earnings are less than Rs 2.5 Lakhs.
Step – 4 Using Deductions and Exemptions for NRIs
Like the residents, NRIs are also allowed to claim various deductions and exemptions from their total income.
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Deductions Under Section 80C for Tax Planning for NRIs
Section 80 deductions are also available to NRIs. The overall limit for FY 2019-20 is Rs 1.5 lakhs per individual. These are:
- Life insurance premium/ULIPs
- Children’s tuition
- Principal repayments on loan for the purchase of a house property
- Investments in ELSS (Equity Linked Saving Schemes) offered by Mutual Funds in India
- NPS – National Pension Scheme (Tier 1 Account only as NRI cannot open Tier 2 account. Tier 1 qualifies for Sec 80C deduction)
Note: PPF Account is no more eligible.
Besides Section 80C, NRI can claim various other deductions like under Tax Planning for NRIs
- House Property Income for NRIs under Sec 24 : Interest for Home Loan up to Rs 2 Lakh PA.
- Section 80D : Mediclaim for Self, Family & Parents.
- Interest on Education Loan – Deduction under Section 80E
- Deduction under Section 80G : Donations.
- Deduction under Section 80TTA : Interest earned on Savings Banks accounts
NRIs are also allowed to claim exemptions under Section 54, Section 54 EC, and Section 54F on long-term capital gains.
Deductions not allowed to NRIs: (a) PPF, NSC, 5-year tax-saving FD & Senior Citizen Savings Scheme.
(b) No Chapter VI A exemptions (Basic Exemption & Sec 80 C & Others) in case Total Income is Investment Income or LTCG or both.
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(c) Deduction for the Differently-Abled under Section 80DD, Section 80DDB, Section 80U is not allowed for NRIs.
Tax Rates for NRIs
The tax slabs are same as that of Resident Indians. You can see the Detailed PDF Here. Some changes also announced on Surcharge over income of Rs 1 Cr in the 2019 -20 budget. Details Here
Avoiding Double Taxation?
As an NRI, you may have a case where the country paying your income is also taxing or deducting TDS. Being NRI you can avoid double taxation by using relief from DTAA between the two countries.
DTAA helps you save tax by using the exemption method or by availing tax credit.
By exemption, it means NRI is taxed in only one country and exempted in another.
By tax credit it means is the income is taxed in both countries, tax relief can be provided for the tax paid in a foreign country by reducing tax payment in the country of residence. DETAILS on DTAA here.
Some Frequently Asked Questions on Tax Planning for NRIS
Q: Are NRI above aged 60 years or 80 Years given relief like residents?
No. Hence, as an NRI, even if you are a senior citizen, the exemption limit is Rs 2.5 lakhs only.
Q: Do NRIs get Rebate under Sec 87A? (Rebate of Rs 12500 if the taxable income after 80C deduction is less than 5 Lakh- Applicable from AY 2020-21)
No. This is applicable for Resident Individuals only.
Q: Is TDS applicable when payments are being made to NRIs?
Yes for many cases like rent, professional or technical fees, etc. The person deducting TDS must have or obtain a TAN. Form 15CA and Form 15CB ae required in some cases. Read details here.
Q: Can NRI claim TDS deducted from Debt MF short term capital gain if no income in India?
Yes. But one has to file returns to claim Refund.
Q: Suppose bank deduct TDS on NRO FD & income is less than Rs 2.5 L in India. Can he (NRI) claim TDS deducted at the time of filing it returns?
Yes.
Q: Will NRI be subject to capital gains tax if I sell a residential property in India?
Yes. Also, the purchaser will have to deduct TDS. Details on NRI Guide to Property.
Q: What is the Last Date to File Income Tax Return in India?
Normally July 31st is the last date. IT department may extend but confirm the extension first.
Q: NRIs Have to Pay Advance Tax also?
Yes like residents if your tax liability exceeds Rs 10,000 in a financial year, you are required to pay advance tax.
Q: Do WealthWisher Financial Planners & Advisors do Tax Planning for NRIs or help in Returns Filling for NRIs?
Yes, for all our clients, Annual Return filing is provided with at a nominal cost. (Email me at madhupam@thewealthwisher.com)
Q: I have more questions on NRI taxation?
Go Ahead… use the comments sections below. We will provide answers to your questions.
