Find out your residential status and whether you are required to file an income tax return.
Learn about taxable income under various heads and special provision for an NRI.
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You are considered an Indian resident for a financial year:
If you are an Indian Citizen working abroad or a member of a crew on an Indian ship only the first condition is available to you - which means you are a resident when you spend atleast 182 days in India. The same is applicable to a PIO who is on a visit to India. The second condition is not applicable to these individuals.
A PIO is a person who, or any of his parents, or any of his grandparents were born in undivided India.
You are an NRI if you do not meet any of these conditions.
An NRI's income taxes in India will depend upon his residential status for the year.
If your status is 'resident', your global income is taxable in India. If your status is 'NRI', your income which is earned or accrued in India is taxable in India.
Salary received in India or salary for service provided in India, income from a house property situated in India, capital gains on transfer of asset situated in India, income from Fixed Deposits or interest on savings bank account are all examples of income earned or accrued in India.
These incomes are taxable for an NRI. Income which is earned outside India is not taxable in India. Interest earned on a NRE account and FCNR account is tax free. Interest on NRO account is taxable for an NRI.
NRI or not, any individual whose income exceeds Rs.2,50,000 (for FY ending 31st March 2015 or Rs.2,00,000 for FY ending 31st March 2014) is required to file an income tax return in India.
NRIs must file their returns when they:
Whether your Income will be taxed in India depends upon your residential status.
First let's find out Srishti's residential status. Since she is an Indian citizen and has gone to USA for her job - she will be a resident if she spends 182 days or more in India. Srishti left India on 3rd July 2013 and came back to India on 15th March 2014. Therefore in the financial year that begins on 1st April 2013 and ends on 31st March 2014, Srishti has spent less than 182 days in India. Since she is an Indian citizen on an employment abroad, to qualify as a resident she must spend 182 days or more in India. Therefore, Srishti is an NRI for the purpose of Income Tax in India.
For Srishti, only her income which is earned or accrued in India shall be taxable in India. Her income in the USA is not taxable in India since she is an NRI. Interest earned in India is taxable for an NRI. (Do note that interest on NRO account is taxable whereas interest earned on NRE account is exempt from tax).
Srishti needs to add up all the income she has earned in India. The interest earned on the NRO account of Rs 70,000 is Srishti's only income. For FY 2013-14, the minimum income which is exempt from tax is Rs 2,00,000. Srishti's total income in India is less than the minimum exempt amount and therefore she does not have to pay any tax on it. In fact, since no tax is payable by her, she must claim a refund of the TDS deducted on her interest income.
A refund can only be claimed by filing an income tax return for that financial year.
If capital gains from selling an asset is your only income in a financial year and TDS has been deducted on that, then you are not required to file your income tax return for that year.
July 31 is the last date to file income tax return in India for NRIs.
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Your salary income is taxable when you receive your salary in India or someone does on your behalf. Therefore, if you are an NRI and you receive your salary directly to an Indian account it will be subject to Indian tax laws. This income is taxed at the slab rate you belong to.
Income from Salary will be considered to arise in India if your services are rendered in India. So even though you may be an NRI, but if your salary is paid towards services provided by you in India, it shall be taxed in India.
In case your employer is Government of India and you are the citizen of India, Income from salary if your service is rendered outside India is also taxed in India. Note that income of Diplomats, Ambassadors is exempt from tax.
Ajay was working in China on a project from an Indian company for a period of 3 years. Ajay needed the salary in India to take care of the needs of his family and make payments towards housing loan. However, since salary received by Ajay in India would have been taxed as per Indian laws, Ajay decided to receive it in China.
Income from a property which is situated in India is taxable for an NRI. The calculation of such income shall be in the same manner as for a resident. This property may be rented out or lying vacant.
An NRI is allowed to claim standard deduction of 30%, deduct property taxes and take benefit of a interest deduction if there is a home loan. The NRI is also allowed deduction for principal repayment under section 80C. Stamp duty and registration charges paid on purchase of a property can also be claimed under section 80C. Income from House Property is taxed at slab rates applicable.Read more about how to calculate Income from House Property here.
Nandini owns a house property in Goa and has rented it out while she lives in Bangkok. She has set up the rent payments to be received directly in her bank account in Bangkok. Nandini's income from this house which is in India shall be taxable in India.
A tenant who pays rent to an NRI owner must remember to deduct TDS at 30%. The income can be received to an account in India or the NRI's account in the country he is currently residing.
Maria pays a monthly rent of Rs.30,000 to her NRI landlord. She must deduct 30% TDS or Rs.9,000 before transferring the money to the landlord's account. Maria must also get a Form 15CA prepared and submit it online to the Income Tax Department.
A person making a remittance (a payment) to a Non Resident has to submit Form 15CA. This form is submitted online. In some cases, a certificate from a Chartered Accountant in Form 15CB is required before uploading Form 15CA online. In Form 15CB, a CA certifies details of the payment, TDS rate and TDS deduction as per section 195 of the Income Tax Act, if any DTAA (Double Tax Avoidance Agreement) is applicable, and other details of nature and purpose of the remittance.
Form 15CB is not required when:
Neither is required if the transaction falls under Rule 37BB of the Income Tax Act, where it lists 28 items. Go here to see the list.
In all other cases, if there is a remittance outside India, the person who is making the remittance will take a CA's certificate in Form 15CB and after receiving the certificate submit Form 15CA to the government online.
Interest income from fixed deposits and savings accounts held in Indian bank accounts is taxable in India. Interest on NRE and FCNR account is tax free. Interest on NRO account is fully taxable.
Any income earned by an NRI from a business controlled or set up in India is taxable to the NRI.
Any capital gain on transfer of capital asset which is situated in India shall be taxable in India. Capital Gains on investments in India in shares, securities shall also be taxable in India.
If you sell a house property and have a long-term capital gain, the buyer shall deduct TDS at 20%. However, you are allowed to claim capital gains exemption by investing in a house property as per Section 54 or investing in Capital Gains Bonds as per Section 54EC.
When an NRI invests in certain Indian assets, he is taxed at 20%. If the special investment income is the only income the NI has during the financial year, and TDS has been deducted on that, then such an NRI is not required to file an income tax return.
What are the investments that qualify for special treatment?
Income derived from the following Indian assets acquired in foreign currency:
No deduction under Section 80 is allowed while calculating investment income.
For long-term capital gains made from the sale of transfer of these foreign assets, there is no benefit of indexation and no deductions allowed under Section 80. But you can avail an exemption on the profit under Section 115 F when the profit is reinvested back into:
In this case, capital gains are exempt proportionately if cost of new asset is less than net consideration. Remember, if the new asset purchased is transferred or sold back within 3 years, then the profit exempted will be added to the income in the year of sale/transfer.
The benefits above may be available to the NRI even when he/she becomes a resident - until such an asset is converted to money AND upon submission of a declaration for the application of the special provisions to the Assessing Officer by the NRI.
The NRI may choose to opt out of these special provisions and in that case the income (investment income amd LTCG) will be charged to tax under the usual provisions of the Income Tax Act.
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Most of the deductions under section 80 are also available to NRIs. For FY 2014-15, a maximum deduction of up to Rs. 1,50,000 is allowed under section 80C from gross total income for an individual.
NRIs can claim all the deductions available to a resident from Income from House Property for a house purchased in India. Deduction towards property tax paid and interest on home loan deduction is also allowed. You can read about house property income in detail here.
NRIs are allowed to claim deduction for premium paid for health insurance. This deduction is available up to Rs.20,000 for senior citizens and up to Rs. 15,000 in other cases for insurance of self, spouse and dependent children. Additionally, an NRI can also claim a deduction for insurance of parents(father or mother or both) up to 20,000 if their parents are senior citizen and Rs. 15,000 if the parents are not senior citizens. Therefore, an NRI will be able to claim a maximum deduction of Rs. 40,000 under this section. Beginning FY 2012-13, within the existing limit a deduction of up to Rs. 5,000 for preventive health check-ups is also available.
Under this section, NRIs can claim a deduction of interest paid on an education loan. This loan may have been taken for higher education for the NRI, or NRI's spouse or children or for a student for whom the NRI is a legal guardian. There is no limit on the amount which can be claimed as a deduction under this section. The deduction is available for a maximum of 8 years or till the interest is paid, whichever is earlier. Deduction is not available on the principal repayment of the loan.
Non-resident Indians can claim deduction on income from interest on savings bank account up to a maximum of Rs. 10,000 like Resident Indians. This is allowed on deposits in savings account (not time deposits) with a bank, co-operative society or post office and is available starting FY 2012-13.
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Some Investments under Section 80C:
Investment under RGESS under section 80CCG
Deduction under section 80CCG or Rajiv Gandhi Equity Savings Scheme was introduced effective assessment year 2013-14. The main purpose behind this deduction was to increase retail investor participation in equity markets. Upon satisfaction of certain conditions the deduction allowed is lower of 50% of amount invested in equity shares or Rs 25,000. This deduction is not available to NRIs.
Deduction for the differently-abled under section 80DD
Deduction under this section is allowed for maintenance including medical treatment of a handicapped dependent (a person with a disability as defined for this section) is not available to NRIs.
Deduction for the differently-abled under section 80DDB
Deduction under this section towards medical treatment for a dependant who is disabled (as certified by a prescribed specialist) is available only to Residents.
Deduction for the differently-abled under section 80U
Deduction for disability where the tax payer himself suffers from disability as defined in the section is allowed only to Resident Indians.
Long-term capital gains (when property is held for more than 3 years) is taxed at 20%. Do note that long-term capital gains earned by NRIs are subject to a TDS of 20%.
NRIs are allowed to claim exemptions under section 54, Section 54EC and Section 54F on long-term capital gains. Therefore, an NRI can take benefit of the exemptions from capital gains at the time of filing a return and claim a refund of TDS deducted on Capital Gains.
Exemption under Section 54 is available on long-term capital gains on sale of a house property. Exemption under Section 54F is available on sale of any asset other than a house property.
Exemption is also available under Section 54 EC when capital gains from sale of the first property is reinvested into specific bonds.
The NRI must make these investments and show relevant proof to the buyer to get no TDS deducted on the capital gains. The NRI can also claim excess TDS deducted at the time of return filing and claim a refund.
Rahul's taxes for this year will depend on his residential status. Since Rahul has not been outside of India for more than 182 days, he will be considered a resident.
He will be required to file his income taxes in India this year. This will also include his salary earned during the foreign assignment in Singapore.
If the assignment extends to more than 182 days, Rahul's residential status will change and he will be required to pay taxes only on the Indian income earned thus far. Here note that, Rahul's foreign income credited to an Indian bank account is taxable in India.
NRI or not, every individual must file tax return if their income exceeds Rs. 2,50,000. But note that NRIs are only taxed for income earned/collected in India. So, Rahul will pay taxes on income earned while in India, and income accrued from FDs and savings account.
|Prashant's income from India|
|Income from Indian employer||Rs. 3,00,000|
|Interest income from FDs||Rs. 25,000|
|Bank account savings interest||Rs. 4,500|
|Gross total income||Rs. 3,29,500|
|Section 80C - PPF investments||Rs 20,000|
|Section 80TTA exemption||Rs.4,500|
|Taxable income||Rs. 3,05,000|
|Tax slab at 10%||Rs. 5,500|
|Cess at 3%||Rs.165|
|TDS deducted by employer||Rs. 4,000|
|TDS deducted by bank||Rs. 4,500|
|Tax Refund||Rs. 2835|
|Rental income||Rs 4,20,000|
|Less: Standard 30% deduction under Section 24||Rs.1,26,000|
|Income from House Property||Rs 2,94,000||Income from FDs and bank account||Rs 30,000|
|Gross total income||Rs 3,24,000|
|Deduction under Section 80D||Rs.20,000|
1 Arjun's gift to his father and money transfer of Rs. 10,000 to his mother are exempt from tax. Regarding the insurance expenses on his parents, Rahul can claim a deduction under section 80D of Rs 20,000, since his father is over 65 years of age.
He will be required to file tax return in India as his gross income exceeds Rs. 2,50,000.
Returning NRIs assume RNOR status when:
The I-T Department allows RNORs to continue to enjoy exemptions available to NRIs for a period of 2 years after their return. Therefore, deposits held in foreign currency, which are exempt for an NRI, shall be exempt to returning NRIs for 2 years.
After these 2 years, returning NRIs are treated as resident individuals.
If you are a Resident Indian your global income is taxable in India.This income may have been earned or received outside - but it shall be taxed in India. In case this income is also taxable in another country, you can take benefit of DTAA (Double Tax Avoidance Agreement).
Shreya is a resident in India. Taxability of income in India depends upon residential status. A esident has to pay tax on their Global Income. The resident must disclose all the income earned by them from all sources and all countries in their income tax return and pay tax on it in India. (An NRI pays tax only on income earned or accrued in India).
Therefore, all of Shreya's income, including the fee that she earns in foreign currency will be taxable in India.
Her income in pounds shall be converted to Indian rupees for the purpose of income tax calculation and added to her total income, which will be taxed at slab rates prescribed by the tax department.
If Shreya has already paid tax on the foreign income in UK, she can claim the benefit under Double Tax Avoidance Agreement. Based on the relevant provisions of the DTAA between the two countries, Shreya will be saved from getting taxed twice.
If you are a resident and have earned any income from abroad, remember to disclose it in your Income Tax Return. You can still e-file your income tax return on ClearTax for FY 2012-13 and 2013-14.
An expatriate in India is someone who comes to live in India but is not a citizen of India.
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NRIs can avoid double taxation (meaning: getting taxed on the same income twice in the country of residence and India) by seeking relief from Double Tax Avoidance Agreement between the two countries.
Under DTAA, there are two methods to claim tax relief - exemption method and tax credit method.
By exemption method, NRIs are taxed in only one country and exempted in another. In tax credit method, where the income is taxed in both countries, tax relief can be claimed in the country of residence.
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