NRIs, as we all know, stand for Non-Resident Indians. They are a very privileged section of the population as they bring foreign exchange into the Indian subcontinent. Whenever the country experiences a foreign exchange crisis, it relies on the expatriates of the Indian community to infuse foreign currency into its reserve. A similar incident happened in 2013 when the value of the rupee dropped in comparison to the dollar. At that time, the RBI had introduced an exclusive deposit scheme to handle the deficits.
Now that you understand the worth of NRIs in India, let us go ahead and know more about them, and apprehend whether they should file tax returns in this country. Also, we will peruse the income tax rules set for all NRIs who return to India followed by the basics of tax planning.
If you are an NRI, seeking guidance on how to plan your taxation like an expert, book an appointment with the NRI tax consultants at MPVD & Associates.
Do you qualify as an NRI?
To check this, let us mention the conditions under which a person is termed as a Resident Indian as per the Income Tax Act:
- The person has lived in India for a minimum of 60 days in the last financial year and at least 365 days in the last four financial years
- Or the individual has stayed in India for at least 182 days in the last financial year
If a person fails to satisfy any of the conditions mentioned above, he or she is an NRI from a taxation perspective.
Which Incomes are Taxable for an NRI?
There is no need to type “NRI tax consultant near me” if you wish to know about the incomes which are taxable for you. Enlisted are all those income sources where the Indian Government applies taxes:
- Salaries received in India for services rendered to this country
- Income from rent when a residential property in the country is leased out
- Capital gains from mutual funds, equities, and bonds
- Interests from having a savings account in India and fixed deposits
- Interests drawn from an NRO (Non-Resident Ordinary) account
- Income from owning and operating a business in India
- An amount over Rs. 50,000 received as a gift from a relative in India
However, NRIs are not obligated to pay taxes on income generated from outside the country (i.e. India) as per the DTAA (Double Taxation Avoidance Agreement). This includes interests earned from Foreign Currency Non-Repatriable (FCNR) and Non-Resident External (NRE) accounts.
Tax Planning for NRIs
Any NRI who earns over Rs. 250,000 in India itself and wishes to claim a refund must file tax returns. This applies in cases where they have experienced losses and desire to take them forward in future. The deadline for doing so is July 31st like the rest of the resident Indians. However, they also need to pay taxes in advance when the tax liability exceeds Rs. 10,000 per year.
Let us check how NRIs can plan taxes wisely:
- NRIs can evade taxes if they draw the salary of projects abroad. It makes absolute sense to earn it in countries where the tax rate is low.
- They can claim a 30% standard deduction against rent. They can also avail of a deduction for paying property taxes and principal and interest on loans.
- While leasing out property, an NRI must ensure that the tenant has deducted 30% TDS on rent paid. Otherwise, both the parties would end up breaching rules.
- The NRI must fill Form 15CA if he or she receives less than Rs.50,000 in a single payment and less than Rs.2,50,000 over the year.
- The NRI must obtain a letter from AO or a certificate under Section 197 if the person wishes to deduct lower TDS.
- Another tried and tested way to reduce tax is by reinvesting the proceeds from long-term capital gains in another property under Section 54. They can also reinvest in infrastructure bonds under Section 54EC to claim exemption from taxes.
The good news is that the Income Tax department makes all other exemptions under Section 80C, 80D and 80E available to NRIs just as they are accessible to Resident Indians. There are a few exceptions though like PPF, NSC, SCSS and the 5-year deposit scheme of the Post Office.