NRI Taxation: Decoding tax implications for NRIs

NRI Taxation: Decoding tax implications for NRIs

Taxation is an essential aspect of personal finance, whether you are a Resident Indian or a Non-Resident Indian (NRI). However, when you get into the details, you will find that tax rules are different for NRIs. In this article, let’s understand the tax implications for NRIs.

Determining your residential status

Before understanding taxation, let’s get to know who primarily qualifies as an NRI. The Foreign Exchange Management Act (FEMA) has laid down clear rules to determine if a citizen of Indian origin is a Resident Indian or a Non-Resident Indian.

An individual is a resident of India (for tax purposes or otherwise) if:

  • He/she has lived in India for at least 182 days during the financial year

  • He/she has lived in India for at least 60 days of a year, in the previous year, and at least 365 days in the preceding four years.

Where an Indian citizen leaves India in any year for the purpose of employment, or as a member of a crew of an Indian merchant ship, the period of ‘60 days’ is to be replaced by ‘182 days’. Similarly, when an Indian citizen or a person of Indian Origin (PIO) who is abroad comes to visit India, the period of ‘60 days’ is to be replaced by 182 days.

If you satisfy any of the two conditions, you are a Resident Indian. Else, you are deemed a Non-Resident Indian (NRI).

Taxable income for NRIs

If you reside and work abroad, the NRI income tax you pay will depend on your residential status for the year. If you fit the Resident Indian criteria, your total global income is taxable under Indian tax laws. But if your status for the year is ‘NRI’, only the income earned or accrued in India is taxable.

The NRI income tax be levied on the following:

  • Salary received for services provided in India (Global Income)
  • Capital gains earned on the transfer of assets located in India
  • Rental income from property owned in India
  • Revenue from Fixed Deposits 
  • Interest on Bank Savings Accounts 

Planning a Fixed Deposit? Click here to open one now!

As an NRI, you can consider using NRI Banking from HDFC Bank for a smooth and hassle-free banking experience.

Tax deductions available for NRIs

NRIs can avail of the tax deductions under Section 80C. Currently, a maximum deduction of up to Rs 1.5 lakh is permissible for tax deductions under the said section.

Deductions under Section 80C

  • Life insurance premium payment

    You can claim tax deductions on your Life Insurance premium payments, provided the policy is in your name, your spouse’s or child’s name. In addition, the premium must be less than 10% of the sum assured for this deduction.
  • Repayment of principal on loan for the purchase of property

    Repayment of an EMI on a loan taken for acquisition or construction of a residential property is eligible for deduction. This includes registration fees, stamp duty and other expenses.
  • Children’s tuition payment

    Tuition fees paid to an educational institution such as a school, college or university for full-time education for your children are eligible for deductions. This benefit is applicable for two children at most.
  • Investment in ELSS

    Investments in Equity Linked Savings Scheme (ELSS) from Mutual Funds up to Rs 1.50 lakh are eligible for deduction under Section 80C.

Deductions under Section 80D

As an NRI, you can also claim a deduction on premium paid for Health Insurance under Section 80D of the Income Tax Act, 1961. This is available for premiums paid up to Rs 25,000 on insurance paid for self, spouse and dependent children. In case of senior citizens, this amount increases to Rs 50,000.

How to avoid double taxation?

Double taxation occurs when income tax is paid twice on the same source of income. It is not uncommon for NRIs to earn income in two countries. However, NRIs have to pay taxes on the same income in two countries: the country where they draw the revenue, and the country where they hold the citizenship. India has signed a Double Tax Avoidance Agreement (DTAA) with various countries to help NRIs avoid this problem. Nevertheless, to avail this benefit, you need to gather all the necessary documents of tax, paid in India, as proof.

To sum up

As an NRI, you may want to err on the side of caution when it comes to NRI taxation. The rules for you are slightly different compared to Resident Indians, and in some cases, you may end up paying double tax if you are unaware of the rules. It would be a good idea to understand tax policies and make the most of the tax benefits available to you.

Under Section 80C of the Income Tax Act, 1961 you can save tax by investing in Tax saving FD. Calculate using FD calculator.

The tax saving fixed deposit is an investment financial instrument which lets you claim a deduction of 1.5 lacs annually.

* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.