Taxation of Income in India for NRI is an important element under Tax Planning for NRIs. India follows a progressive manner of taxation. Last Years Union Budget has divided the Income Tax System into 2 regimes. They are called the Old Regime of Taxation & New Regime of Taxation. Here is the complete details of the NRI Income Tax. Here are the main rules for FY 2021-22 & AY 2022-23.
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Taxation of Income in India for NRI
Tax Slabs Under Old Tax Regime
The tax rates applicable to individuals for FY 2021-22 are given in the table below:
Tax Slabs Under New Tax Regime
As per Section 115BAC of the IT Act 1961, the income-tax payable in respect of the total income of a person, being an individual or a Hindu undivided family, for any previous year relevant to the assessment year beginning on or after the 1st day of April, 2021, shall, at the option of such person, be computed at the rate of tax given in the following tabulated.
*Marginal relief is available to ensure that the additional income tax payable, including surcharge of 10%/15% on the excess of income over Rs. 5,000,000/10,000,000 is limited to the amount by which the income is more than Rs. 5,000,000/10,000,000. However, no marginal relief shall be available in respect of the cess.
Following are the points to be kept in mind while selecting new tax rates regime:
Any individual opting to be taxed under the new tax regime from FY 2020-21 onwards will have to give up certain allowance, exemptions, and deductions as discussed below.
In case of Individual having no business Income -Option can be exercised each year and shall be exercised at the time of furnishing return of Income.
In case of Individual having business Income- The option once exercised shall not be changed unless there is a cessation of business income and at that point of time such individual can again exercise to choose option on-year to-year basis. Period of Exercised in these case shall be before the due date of filing income tax return.
In case conditions are not fulfilled, option exercised shall become invalid for that financial year and for the subsequent financial years as well.
Old Tax Regime or New Tax Regime for NRIs?
For Non-resident Individual who does not claim deduction under Chapter VI-A deduction and does not have salary income, new tax rates are beneficial. In case of other NRI individual, one needs to compare his tax liability between Old Regime and new regime and accordingly exercise his options.
NRIs Please Note
Rebate under Section 87A is not applicable to Non-resident Individuals. Under this rate if your Net Total Income comes less than Rs 5 Lakh, a rebate of Rs 12500 is given, Means up to or below Rs 5 Lakh for resident income there is no tax. The same is Not Valid for NRIs.
Eligible Deductions from Income for NRI
Various investments and payments under Section 80C, 80CCD and 80CCD are available.
Sec 80 C for NRI
An individual will be eligible for a deduction up to a maximum of Rs. 150,000 in respect of some investments and expenses made.
Some of the common investments and expenses have been enumerated below:
- Life Insurance premium paid on life of himself, his, spouse or any of his children (married/ unmarried, minor/major). The premium amount must be less than 10% of sum assured.
- Repayment of the principal amount of housing loan from specified entities including stamp duty, registration fees and other expenses for purpose of transfer of such property to the NRI are allowed as deduction. However, loan taken from relative or friends is not eligible for deduction.
- Contribution to public provident fund scheme by the individual himself, his spouse or any child. However, an NRI cannot open a fresh PPF account. However, he can use the funds in the NRE account or the NRO account to make investments in PPF.
- Contribution by an employee to a recognized provident fund, approved superannuation fund or statutory provident fund.
- Contribution to ELSS (equity linked saving schemes) of mutual funds, popularly known as tax-saving schemes.
- Children’s tuition fees for the purpose of full- time education of any 2 children. (including payments for play school, pre-nursery and nursery).
- Fixed Deposit with Scheduled Bank for 5 years or more.
- Subscription to National Bank for Agriculture and Rural Development (NABARD) bonds.
- Five year Post Office Time deposit
- Contribution to Unit-linked Insurance Plan (ULIP) in the name of the individual himself or his spouse or his children in case of individual. E.g. Dhanraksha 1989 and contribution to other units -linked insurance plan of UTI.
In addition, an individual can also claim deduction under section 80CCC for amount paid for a contract for an annuity plan of LIC or any other insurer for receiving pension from a fund set up under a pension scheme. These payments are also covered under the overall limit of Rs. 150,000 as discussed above.
Pension Scheme [80CCD]
Section 80CCD of the ITA allows a deduction for contributions made by an individual or by his employer towards National Pension Scheme (NPS) and Atal Pension Yojana (APY) account. There are some restrictions on the contribution which you can make towards your NPS account.
The restriction up to which an individual can claim tax benefit under Section 80CCD is capped at 20% of gross total income from FY 2017-18.
This is covered within the overall limit of Rs. 150,000 under section 80CCD (1) with an additional deduction upto Rs. 50,000/- under section 80 CCD (1B).
An NRI aged between 18-60 years can open NPS account. However, opening a joint account in NPS is not permissible. The contributions by NRIs can be from either of the following sources subject to normal foreign exchange conversion norms:
- NRE Account
- NRO Account/ Local sources
Health Insurance Premium [Section 80D]
Health insurance premium paid in respect of an individual, his spouse and dependent children is eligible for deduction under section 80D subject to the limits as enumerated:
**Senior citizen/ very senior citizen” means an individual resident in India who is of the age of sixty/ eighty years or more respectively at any time during the relevant previous year;
A. For taxpayer his/her spouse and dependent children:
The entire premium amount paid subject to ceiling of:
Rs. 50,000/- in the case of premium paid in respect of senior citizen/ very senior citizen.
And
Rs. 25,000/- in other cases
B. Additional deduction for parents of the taxpayer whether dependent or not,
The entire premium amount paid subject to ceiling of:
Rs. 50,000/- in case of premium paid in respect of senior citizen/ very senior citizen
And
Rs. 25,000/- in other cases
Interest on education loan [Section 80E]
Interest paid by an individual in respect of education loan taken for pursuing higher education of his/her spouse, children and legal guardian of the individual shall be eligible for deduction without any monetary limit.
The deduction is allowed for 8 consecutive years or till the interest is paid, whichever is earlier. The first year for the purpose of the eight years term shall begin from the year in which an individual starts paying the interest on such education loan.
Donation [Section 80G]
Donations made to certain funds, charitable institutions etc. are eligible for deduction under this section. The amount of deduction would depend on the nature of donation and could fall under any of the categories given below:
Most of the donations are eligible for deduction at 50% (subject to limits).
However, certain donations such as donation to National Defence Fund, Prime Ministers National Relief Fund, etc. enjoy 100% deduction without any limit.
Any donations made in cash exceeding Rs 2,000 will not be allowed as deduction. The donations above Rs 2,000 should be made in any mode other than cash to qualify as a deduction under section 80G.
The Finance Act 2020 proposes that deduction under this section to a donor shall be allowed only if a statement is furnished by the donee in respect of donations received.
Hence, a new reporting obligation has been imposed on the institutions receiving donations. Further, these institutions shall be required to issue a certificate to the donor and the claim for deduction to the donor may be allowed on that basis only.
Rent Paid [Section 80GG]
Section 80GG provides tax benefits to the individuals who though are not in receipt of any HRA are still paying rent for the house occupied by them for their own residence.
An individual shall be allowed deduction in respect of the rent paid by him. The extent of deduction shall be:
Lower of:
- Rs. 5,000 per month, or
- 25% of the total income (after allowing all deductions except under this section), or
- Expenditure incurred in excess of 10% of the total income (after allowing all deductions except under this section).
Savings Bank Interest [Section 80TTA]
Section 80TTA allows to an Individual or HUF, not being a senior citizen, from his gross total income if it includes any income by way of interest on deposits (not being time deposits) in a savings account, a deduction amounting to Rs. 10,000/-.
The basics of Sec 80 are covered. Anything more? Drop me an email or use the comments section below.
