Income tax rules applying to non-residents are slightly different from those for residents. The income that NRI earns abroad is not taxable in India. But if an NRI earns income in India, in the form of interest from deposits, property rent, etc then it is taxable. This income, earned in India, has a basic limit of exemption. This article explains abut NRI and ITR,who is NRI,Tax and TDS on various kinds of income for NRI, example bank accounts,fixed deposits,mutual funds,stocks etc. How to use DTAA? When should NRI file Income Tax Return?
Table of Contents
NRI and ITR ,Income Tax Return
Who is NRI?
Non-Resident Indian or NRI under the Income Tax Act, 1961 (IT Act) is tied to number of days of an individual’s stay in India during a particular financial year. Residential status is determined for every year separately. India includes territorial waters of India and Employment includes self-employment
- A person is Non-Resident under IT Act if his stay in India does not exceed 181 days in a financial year or previous year( 1st April to 31st March of next year).
- If the person has not stayed in India for 182 days or more in the relevant year, he will still be resident if he has stayed here for a total of 365 days in the preceding four years and was in India for 60 days during the relevant year.
- For a Person of Indian Origin who comes to India for a visit, the period of stay in immediately previous year has to be 185 days or more to make him a resident in India
Please note: In computing the period of 180 days, the day of entry into India and the day of exit from India shall be included. Our article explains Non Resident Indian – NRI in detail.
Is NRI income earned abroad taxable?
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.
Should NRI file Income Tax Return?
NRI or not, any individual whose income exceeds Rs.2,50,000 (for FY ending 31st March 2015) is required to file an income tax return in India. Note that for an NRI, income earned or accrued in India is taxable in India.
When does NRI have to file Income Tax Return?
If you are an NRI, you would have to file your income tax returns if you fulfil either of these conditions which fall under section 115G
- Your taxable income in India during the Financial yeas was above the basic exemption limit (which for FY 2013-14 is Rs 2 lakh)
- You have earned short-term or long-term capital gains from sale of any investments or assets, even if the gains are less than the basic exemption limit.
- You may also file a tax return if you have to claim a refund. Alternatively, you can submit Tax Exemption Certificate to all your deductors directing them to deduct less tax or nil tax, as applicable.
There are following exceptions:
- If your taxable income consisted only of investment income (interest) and/or capital gains income and if tax has been deducted at source from such income, you do not have to file your tax returns.
- If you earned long term capital gains from the sale of equity shares or equity mutual funds, you do not have to pay any tax .
- NRIs have a basic exemption limit like any resident Indvidual. For AY 2016-17(FY 2015-16) it’s 2.5 lakh. If NRI’s income exceed this limits, an NRI should file income tax returns in India.
- NRIs are taxed as per the tax rate and slabs prescribed for resident Indians below 60 years irrespective of whether he is a senior citizen or not.
- NRIs cannot adjust the taxable capital gains against the basic exemption limit. So if an NRI earns Rs 2.5 lakh capital gains, he will have to pay tax at applicable rates for the full amount even if he has no other income. Due to this, NRIs may have to claim tax refund if more is being deducted than is their tax liability.
Is it mandatory for NRI to e-file income tax return?
In the following cases the Income Tax Department has made it mandatory to e-file Income Tax Return. A significantly large number of returns are e-filed and gradually the income tax department is hoping to bring all returns online.
- you have to claim a refund
- Your gross total income is more than Rs 5,00,000
- You want to claim an income tax refund. Those who are over 80 years old and are filing ITR-1 or ITR-2 can still file a paper return to claim a refund.
- ITR-3, 4, 5, 6, 7 have to be mandatorily e-filed.
Which ITR should NRI file?
The ITR to be filed is same for NRI and Resident. It depends on type of Income earned. Our article Which ITR Form to Fill? provides overview and also suggests which ITR to fill.
Do NRIs have to pay advance tax?
Just like resident, If NRI’s tax liability exceeds Rs.10,000 in a financial year, he is required to pay advance tax . Interest under Section 234B and Section 234C is applicable when you don’t pay your advance tax.
How is NRI recognised in ITR?
In Income Tax Return Form in the Residential Status one needs to select NRI as shown in image below(highlighted by box).
What is the last date for filing India tax returns for NRI?
The last date to file returns for NRI is same as that for the resident India. For the financial year 2015-2016 is July 31st 2016. Like resident Indians an NRI can delay filing his Income Tax returns.
- If you do not have any tax payable (that is all your tax has been deducted at source), you can still file your tax return by 31st March 2017 without any penalties
- If you do have tax payable, you can still file your returns by 31st March 2017 but you will be charged an interest of 1% per month for every month of delay starting from 31st July 2016 till the time you file your tax returns
NRI and Income
If your status is NRI, as per Income Tax Act, your income which is earned or accrued in India is taxable in India. Your global income is not taxed.
What kind of income is taxable for NRI?
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. Our article, Bank Accounts for NRI:NRO,NRE,FCNR, Their comparison, talks about it in detail.
Lets go over the different types of Income for NRI.
Income from salary
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 House Property
- Income from a property situated in India , whether rented out or lying vacant, is taxable for an NRI, just like a resident Indian. Income from House Property is taxed at slab rates applicable.
- 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.
- 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. There is no separate rate prescribed for TDS on rent paid to NRIs. Just like in the case of capital gains on assets, the payer of the rent is responsible for deducting the tax at source. The same process of getting a TAN and issuing a TDS certificate applies in this case too.
- A person making payment to a Non Resident has to submit Form 15CA/Form 15CB. This form is submitted online.
Income from other sources
- 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.
Income from business and profession
Any income earned by an NRI from a business setup or controlled in India is taxable to the NRI.
Income from capital gains
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.
TDS rates for NRI
Tax liabilities of an NRI investing in India are the same as that of a resident investor, but tax is deducted at source(TDS) in case of NRI. TDS is deducted for most of the investments at flat rate irrespective of income slab, unlike the resident Indians. Various investment options , tax rate applicable and TDS are explained below. Applicable tax on gains will be deducted at the time of redemption/maturity. In any of the cases if the tax liability on your investment is less than the amount of tax deducted at source then you can file your income tax refund to get refund from income tax department.
Please note that If NRI does not provide correct Permanent Account Number(PAN) TDS would be deducted at the rate 20% or at the rate specified whichever is higher.
Tax and TDS for NRI for Bank accounts, Fixed Deposits
An NRI can have Non Resident External (NRE) accounts, Foreign Currency Non Resident (FCNR) or Non-Resident Ordinary Rupee Account (NRO Account). Our article, Bank Accounts for NRI:NRO,NRE,FCNR, Their comparison, talks about it in detail.
Interest earned on Non Resident External (NRE) accounts and Foreign Currency Non Resident (FCNR) accounts are tax free in India. Hence, there would be no TDS.
NRO accounts may be opened in the form of current, savings, recurring or fixed deposit accounts. Interest earned on the Non Resident Ordinary Account (NRO) is taxable and will be subject to a TDS of 30%. This holds true for Post office also. There is no basic exemption limit. For example, interest earned by resident Indians from bank deposits is subject to TDS only over and above a limit of Rs 10,000. No such limit applies for NRIs.
TDS and Tax for Mutual Funds for NRI
For investing in Indian mutual funds, therefore, an NRI needs to open one of the three bank accounts-non-resident external rupee (NRE) account, non-resident ordinary rupee (NRO) account or foreign currency non-resident account (FCNR)-with an Indian bank.
|Category of Units||Tax Rates under the Act||TDS Rates under the Act|
Short Term Capital Gain
|Units of Non-equity Oriented Scheme||Taxable at normal rates of taxes applicable to the assesse||30% for Non Resident Individuals|
|Units of an Equity Oriented Scheme||15% on redemption of units where STT is payable on redemption (u/s 111 A)||15%|
Long Term Capital Gain
|Listed Units of a Non-Equity Oriented Scheme||10% without Indexation OR 20% with indexation, whichever is lower (u/s 112)||20% for Non Resident Individuals (u/s 195)|
|Unlisted Units of a Non-Equity Oriented Scheme||10% with no indexation||10% for Non Resident Individuals (u/s 115E/112)|
|Units of an Equity Oriented Scheme||Exempt in case of redemption of units where STT is payable on redemption (u/s 10(38))||Exempt in case of redemption of units where STT is payable on redemption (u/s 10(38))|
Dividends for NRI
Dividends from equity shares, equity mutual funds and debt mutual funds are exempt in the hands of the share or unit holder.
Equity Investments and NRI
NRIs can invest in Indian stock markets under the Portfolio investment scheme (PIS) of the Reserve Bank of India (RBI). Under this scheme, an NRI has to open an NRE/NRO account with an RBI-authorised Indian bank. An individual open only one PIS account for buying and selling stocks. Each transaction through a PIS account is reported to the RBI. Aggregate investment by NRIs/PIOs cannot exceed 10% of the paid-up capital in an Indian company. An NRI cannot transact in India except through a stock broker so he needs to open a demat account and a trading account with a Sebi-registered brokerage firm.
Long term capital gains, profits made on sale after 1 year from date of purchase, on equity shares (like in equity mutual funds) are exempt from tax. There will be no TDS applicable.
Short term capital gains, profits on sale within one year of date of purchase, are subject to a TDS of 15%.
Capital Gains on Gold , House Property and NRI
For Capital gains on other assets like house property, gold
- Long term capital gains are subject to a TDS of 20 per cent.
- Short term capital gains are subject to a TDS of 30 per cent.
The payer of the sale proceeds, even if he is an individual is responsible for deducting tax at source and paying it to the Government. He must get a Tax Deduction Account number (TAN) and issue a TDS certificate for the same. The onus of deducting tax is on the payer
Professional services and royalty
If an NRI receives a payment from a company in India for providing professional services, his income would be subject to TDS. The rates are as follows.
- If your agreement is dated between 1st June 1997 and 30th May 2005, you would be subject to a TDS rate of 20 per cent.
- If your agreement is dated on or after 1st June 2005, you would be subject to a TDS rate of 10 per cent
- The same applies to royalty. For definitions of professional service and royalty, please refer to section 115 of the Income Tax Act.
Interest on all other investments
Interest earned on all other investments like corporate deposits and bonds will be subject to TDS at 20 per cent. In all these cases, the company or party making the payment will deduct this tax
All other income
All other income that an NRI earns and which are liable for tax as per Indian laws, will be subject to a TDS of 30 per cent.
Double Taxation and NRI
Are NRI subjected to double taxation-once in India and again in the country of their residence? It depends on the country of residence. If the Indian government has a avoidance of double taxation treaty (ADTT) with that country, the NRI will be spared from paying tax twice. Many countries have an ADTT with India. For example, India has an ADTT with the US. If an NRI based in the US makes short-term capital gains from equity investments in India, he pays 15% tax. However, the rate for such gains is 30% in the US. The investor will need to pay tax only for the difference in rate. This means he gets a deduction on the tax paid in India from his tax payable in the US.
For availing the benefit of Double Tax Avoidance Agreement(DTAA), beneficiary of Double Tax Treaty is require to submit Tax Residency Certificate issued by Government of NRI’s residence. For example To obtain U.S Residency Certificate, also known as IRS Form 6166 you will have to fill out ans submit IRS Form 8802. If you need the certification for the next calendar year the earliest you may apply is December 1 of the current year. IRS Information on Completing the Form 8802, Application for United States Residency Certification explains how to get Tax Residency Certificate.
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- Bank Accounts for NRI:NRO,NRE,FCNR, Their comparison
- NRI : Fixed Deposits, DTAA
- How to report Incomes from India while filing US tax returns