In this era of globalisation, India is also constantly involved in building economic ties with other developed or developing markets. There are a large number of employee movements happening around the globe. In that case, it is difficult for them to straddle two tax jurisdictions as well as reporting to two different hosts in order to maintain the tax laws in two countries.
There comes the role of NRI taxation, which is a constant concern among the Indians who live abroad. Besides, the tax filing season is the particular time of the year when you look for ways to save tax on the money you earned. However, NRI taxation rules are friendly when it comes to bringing NRI income in the country. Also, the ground rule is that money earned by an NRI outside India will not be taxed in India. The Indian Income Tax Act 1961 implies to those who earn outside the country, but the tax rules and perks can differ drastically for NRI candidates in comparison to resident Indians. In the article, we will discuss all the things you need to know about NRI taxation.
Determining your residential status
In order to enjoy the benefits of NRI taxation rules, you need to qualify as a Non-resident in India for the relevant financial year. According to Indian tax laws, if you are in India for a minimum of six months or 182 days during a financial year, then you are considered as an Indian resident. In the case of Indian citizen working abroad but visits India in a year and stays for lesser than 182 days in a relevant financial year then he is regarded as an NRI. Additionally, the same conditions are applicable for a Person of Indian Origin or PIO, who is visiting India on a relevant tax year.
Qualifying taxable income for an NRI
The amount of payable taxes for an NRI depends upon his or her residential status for the year. If you are regarded as an NRI, then your global income will be taxable as per India tax rules. Also, the salary that you have received in India, if you have provided service in India, income generated from house property, if you have capital gains in India and even interest you gain from on a savings bank account, all these are subjected as taxable because these are recognised as income accrued in India. However, income that is earned outside India by an NRI is not taxable in the country. Along with these, the interest earned on NRE and FCNR account is also tax-free, but interest earned on NRO account is taxable.
Deductions for NRIs
Just like the Indian residents, NRI candidates can also claim deductions on their total income that are discussed below. NRIs also enjoy tax deductions on wire transfer as well.
- Deduction under section 80C – NRIs enjoy various tax deductions while paying life insurance or on Unit-linked insurance plan, during repayments on loan, tuition fee deduction for two children of a family, wire transfer and ELSS fund investments and others under this rule.
- Deduction under section 80D – NRIs can claim a deduction on health premium insurance. An NRI can claim a deduction for insurance for parents, senior citizen parents, spouse or for a dependent child.
- Deduction under Section 80E – An NRI can claim a deduction for the interest paid for an educational loan. Deduction can be claimed until the interest is paid or a maximum of 8 years. However, there is no fixed amount deduction to be claimed under this section. This loan should be taken by an NRI for his or her higher education or for spouse or children.
- Deduction under Section 80G – An NRI can claim deductions for social causes, under this section.
- Deduction under Section 80TTA – Under this section, an NRI can claim deduction on interest earned on a savings bank account.
Avoiding double taxation –
NRIs can avoid getting taxed twice for the same income, in his country of residence as well as in India if he seeks DTAA between the two countries. An NRI can claim tax relief under DTAA in two ways, either by exemption method or tax credit method. By applying the exemption method, NRIs can exempt taxes in one country. On the other hand, the tax credit method only ensures tax relief in the country of residence while the income is still taxable in both countries.
When it comes to NRI taxation, you may want to stay cautious. In some circumstances, you might end up paying extra for not knowing the tax rules. You can avail most of the benefits if you have a better understanding of tax rules and perks. Hence, with the above suggestions, NRIs will be able to deal with work or business assignments in foreign countries in a structured manner, even form tax perspectives.