Non Resident Indians- Taxation and TDS

It is essential to know a NRI’s residential status for calculating his/ her tax liabilities because certain income of a NRI or a Resident but not ordinary resident (RNOR) is not taxable in India. Under section 6 (1) of income tax Act 1961, an individual is said to be resident if he/she satisfies at least one of the basic conditions.

 

 a. He/She is in India in the previous year for a period of 182 days or more.

b. He/She is in India for a period of 60 days or more during the previous year and 365 days or more during 4 years immediately preceding the previous year.

If any individual is not able to fulfil the above two condition, he/she is a Non Resident Individual (NRI).  

After getting residential status, it is necessary to know whether that person is a resident with ordinary resident individual or resident but not ordinary resident individual. Under section 6(6), a resident individual is treated as ‘resident and ordinary resident’ in India if he/she satisfies the two basic conditions.

a. He/She has been resident in India in at least 2 out of 10 previous years immediately preceding the relevant previous years.

b. He/She has been in India for a period of 730 days or more during 7 years immediately preceding the relevant previous year.

If any individual is not able to satisfy the above two condition, he/she will be treated as a resident but not ordinary resident. (NRO)

Individual Taxpayers

Income

Resident and ordinarily resident

Resident but not ordinarily resident

Non-resident

Indian income

Taxable in India

Taxable in India

Taxable in India

Business income and business is controlled wholly or partly from India

Taxable in India

Taxable in India

Not Taxable in India

Income from profession which is set up in India

Taxable in India

Taxable in India

Not Taxable in India

Other foreign income

Taxable in India

Not Taxable in India

Not Taxable in India

Taxation Rules for NRIs

There are various source of income of NRI which is not taxable in India.

a. Income which is earned outside India by an NRI is not taxable in India.

b. Interest income in a non-resident external (NRE) account and foreign currency non-resident (FCNR) account is not taxable in India.

c. Dividend income and long-term capital gains (Equity shares or Equity oriented mutual fund where STT is paid) tax is zero in India.

d. If an NRI do not have any income in India, he/ she need not file income tax return. 

Deduction

An NRI is eligible for 80C deduction by investing in pension plan, life insurance policies and tax saving mutual funds (ELSS scheme). The repayment of principal amount of a home loan is also eligible for 80C deduction up to max of 1 lakh rupees. Interest payment of housing loan is allowed as deduction up to rupees 1.5 lakhs. An NRI can claim deduction of max Rs 35,000 by taking medical insurance policy in his/her name/family members/parents.  If he/she has been repaying education loan, the interest amount is allowed as deduction under section 80E.  

If he/she generates income by selling capital asset, it will be treated as capital gain. He/she can also put this amount in tax saving bond for saving your tax. Capital gains up to 50 lakhs can be invested in the bonds of NHAI or REC for saving capital gain tax.

Investment

If an NRI has a Public Provident Fund (PPF) account in India, he/she can put his deposit in his/ her account but can’t extend their PPF account after maturity.

An NRI can invest in mutual funds on a repatriable basis as well as non-repatriable basis. The various procedures for investing in mutual funds are

a. Apply for a PAN card

b. After getting PAN card, apply for Know your customer (KYC) verification (where your address proof, identity proof and PAN card are required)

c. Open NRE or NRO or FCNR account depending on your requirement (In case of repatriable basis you must have an NRE or FCNR bank account in India but in case of non-repatriable basis NRO account is required).

d. Choose a good scheme, Fill up the Mutual form and submit in AMC.

Tax Deducted at Sources (TDS) treatment

SL no

Particulars

 

Taxable in India

1

Interest on NRE

NO TDS

2

Interest on FCNR

NO TDS

3

Interest on NRO

30% TDS

4

Interest on Corporate deposit & bond

20% TDS

5

Dividend From equity shares & MF (equity & debt)

Exempt

6

LTCG Equity shares and Equity MF (more than 50% Equity)

Exempt

7

STCG Equity shares and Equity MF (more than 50%Equity)

15% TDS

8

LTCG on debt MF & corporate debenture

10% TDS

9

STCG on debt MF & corporate debenture

30% TDS

10

LTCG on house property & gold

20% TDS

11

STCG on house property & gold

30% TDS

12

Professional service

20% TDS *

13

Professional service

10% TDS **

14

Income from lotteries, cross word puzzles and horse races.

40% TDS

*If agreement is dated between 1.6.1997 to 30.5.2005

**If agreement is dated on or after 1.6.2005

Waiver of TDS

1. If NRI's total income is less than the basic limit

2. If NRI files a return

3. In case of FD, submitting 15H and 15 G***

*** Form 15H can be submitted by a person who is above 60 years and Form 15G can be submitted by a person who is below 60 years.

Three regulatory changes that will make NRIs happy

1. NRIs can open joint account with Indians.

2. Paying for medical expenses made easier.

3. NRIs can avail loan from Indian relatives.

Always seek advice from a SEBI registered investment adviser (RIA)for NRI services. The adviser will guide you properly for Investment, tax and estate planning. 

Last modified on Friday, 16 August 2013 04:13

Prakash Praharaj

Shri Prakash Praharaj has a passion for excellence. He has been awarded two gold medals for securing top positions both in Graduation and Post Graduation in Commerce. He is an MBA with specialization in Finance and marketing. He has been awarded Diploma in Treasury, Investment and Risk Management besides CAIIB from the Indian Institute of Bankers. He is a Certified Financial Planner from the Financial Planning standards Board, India (FPSB), affiliated to FPSB, Denver, USA and Certified Personal Financial Adviser from NISM. He is also a SEBI registered Investment Adviser vide Reg. no. INA 000000045 dated 2nd August 2013.His book "Your Every day guide to Personal Finance and Insurance" has been published by CNBC TV 18 in August 2015.

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