NRI Income Tax Return
The taxable income of a Non-Resident Indian (NRI) depends on their residential status in the relevant financial year.
- If an individual qualifies as a Resident, their global income (both Indian and international earnings) will be taxable in India.
- If an individual qualifies as an NRI, only the income earned in India will be taxable in India.
Examples of Taxable Income for NRIs in India
NRIs are required to pay tax on the following types of income earned in India:
- Salary earned in India (for jobs or services provided in India)
- Capital gains from the sale of assets located in India
- Rental income from house property in India
- Interest income from Fixed Deposits (FDs) and savings bank accounts in India
Tax-Exempt and Taxable Interest for NRIs
- Exempt from Tax:
- Interest earned on FCNR (Foreign Currency Non-Resident) accounts
- Interest earned on NRE (Non-Resident External) accounts
- Taxable for NRIs:
- Interest earned on NRO (Non-Resident Ordinary) accounts
NRIs should ensure proper tax compliance and file their Income Tax Return (ITR) in India if they have taxable income in the country.
Introduction to NRI Income Tax Return
In today’s world, many Non-Resident Indians (NRIs) work abroad but continue to financially support their families in India or make investments for their future. This brings up an important aspect of NRI Income Tax Return in India. Every tax season, taxpayers look for ways to optimize their tax liabilities, and for NRIs, the taxation rules are structured in a way that supports them in managing their Indian income efficiently.
Key Aspects of NRI Taxation
- Income Earned Outside India is Not Taxable: NRIs can bring foreign income to India without being taxed, as only income earned in India is taxable.
- Bank Accounts & Taxation: NRIs commonly hold Non-Resident External (NRE) accounts and Foreign Currency Non-Resident (FCNR) accounts, which are exempt from tax in India. However, Non-Resident Ordinary (NRO) accounts are subject to tax on the interest earned.
Taxation on Property & Inherited Assets
- If an NRI inherits property or assets from family members, the transfer of ownership is not taxable.
- However, if the inherited property generates rental income or is later sold for a profit, it becomes taxable in India.
- Under Sections 54, 54EC, and 54F, NRIs can avail of tax deductions on long-term and short-term capital gains if they reinvest the proceeds in specified assets.
Tax Filing Requirement for NRIs
If an NRI’s total taxable income in India (including rent, capital gains, dividends, or other earnings) exceeds INR 2.5 lakh, they must file an Income Tax Return (ITR) in India.
Investment Restrictions for NRIs
NRIs are not eligible to invest in certain Indian saving schemes, including:
- National Savings Certificates (NSC)
- Senior Citizen Savings Schemes
- Post Office Time Deposits
- New Public Provident Fund (PPF) accounts (although existing PPF accounts can continue till maturity)
However, NRIs can still invest in:
- Home loans
- Life insurance policies
- Pension plans
- Equity-Linked Saving Schemes (ELSS) for mutual funds
Additionally, under Section 80D, NRIs can claim deductions for:
- Tuition fees paid for their spouse or children in India
- Health insurance premiums and medical check-ups for parents or dependents in India
By understanding these tax provisions, NRIs can make informed financial decisions while complying with Indian tax laws.
Income Tax Slabs and Rates for NRIs for FY 2020-21 & AY 2021-22
The Income Tax Act of India mandates that Non-Resident Indians (NRIs) must pay taxes on income earned in India. However, the tax rates and slabs for NRIs differ from those for Indian residents.
Key Points About NRI Taxation
- Income-Based Taxation: NRI tax slabs are based solely on income earned in India, irrespective of gender, age, or other factors.
- No Basic Exemption for TDS: Unlike residents, NRIs are subject to Tax Deducted at Source (TDS) on all their Indian income, without any threshold exemption.
- Limited Deductions: NRIs cannot claim most deductions available to Indian residents, except in certain cases.
- E-Filing Exemption: Under Section 115G, if an NRI’s income is below the taxable limit, they are not required to file an Income Tax Return (ITR).
Important Sections of the Income Tax Act for NRIs
Section 115D – Calculation of Taxable Income
Specifies how an NRI’s income is calculated and taxed.
Section 115E – Special Tax Rate on Investment & Capital Gains
If an NRI earns investment income or long-term capital gains, a flat 20% tax rate is applicable.
Section 115F – Capital Gains Exemption
If an NRI reinvests proceeds from a foreign exchange asset transfer, certain capital gains may be tax-exempt.
Section 115G – Exemption from Filing Tax Returns
NRIs don’t need to file an ITR if their taxable income is below the limit.
Section 115H – Tax Benefits for Returning NRIs
If an NRI becomes a resident, they may still enjoy certain NRI tax benefits.
Section 115I – Income from Foreign Exchange Assets
Defines taxation on income earned from foreign exchange assets.
Applicable Deductions and Exemptions for NRIs
NRIs often overpay taxes due to the high Tax Deducted at Source (TDS) on their Indian income. However, the Income Tax Act of India provides certain deductions and exemptions to reduce the tax burden on NRIs.
Deductions Available for NRIs
Section 80C – Deductions on Investments & Payments
- NRIs can claim deductions up to ₹1.5 lakh on:
- Life Insurance Premiums (policy must be in the NRI’s or their family’s name).
- Tuition Fees paid for children’s education in India.
- Principal Repayment on a home loan for property in India.
- Investment in ULIPs (Unit Linked Insurance Plans).
- Income from House Property (rental or self-occupied).
Section 80D – Health Insurance Premium
- Up to ₹25,000 deduction for self, spouse, and children.
- Up to ₹50,000 if parents are senior citizens.
- ₹5,000 additional deduction for preventive health check-ups.
Section 80E – Education Loan Interest Deduction
- NRIs can claim 100% deduction on interest paid for an education loan taken for themselves, spouse, children, or a dependent.
- Deduction available for 8 years or until the loan is repaid, whichever is earlier.
Section 80G – Donations
- Donations made to eligible charitable organizations in India qualify for deductions.
- Deduction percentage depends on the charity and donation type.
Section 80TTA – Interest on Savings Accounts
- Up to ₹10,000 deduction on interest earned from an NRO savings account.
- Does not apply to interest from NRE or FCNR accounts (which are already tax-free).