Taxable Income for an NRI

What are different types of Income on which an NRI has to pay Tax?

Income from Salary

If you are rendering services in India, it is considered that your income is emerging in India. If you are an NRI and getting salary for the services provided by you in India, your income will only be taxed in India regardless of country where you are receiving the income. For ex – If you are an Indian citizen and earning income from salary under government of India by providing services outside India, it will also be taxable in India.

Note–The Income of Diplomats, Ambassadors are exempt from tax in India.

Example – Mr. XYZ was involved in an Indian project and working in USA from last 3 years. Due to fulfill his family needs and to make payments towards house loan, XYZ wants his salary to be transferred to India. However, Transferring salary in India means his income will be taxable in India as per Indian laws. Therefore, XYZ took the decision of not transferring the salary to India and save his tax.

Income from House Property

NRI earning income from property (rented or owned) situated in India will be taxable as per Indian law. The tax is also calculated for NRI in the same way as an Indian resident. An NRI is eligible to claim 30% standard deduction in order to reduce their property taxes and to take benefit of interest deduction in case of a home loan. NRI is also eligible for deduction on principal repayment under Section 80C. Even an NRI can claim stamp duty, registration charges paid at the time of purchasing of property under section 80C.

For Example – XYZ is living in Singapore from last 3 years. He owns a house in Delhi which he rented out to somebody and receiving rent payments directly in his bank account in Singapore every month. The income XYZ is earning from his house property in India will be taxable in India only.

Note - Income earned by an NRI from house property situated in India is taxed in India depending upon applicable slab rate.

Rental Payments to an NRI

A rent paid by a tenant to an NRI owner subject to TDS deduction at 30%. The rent paid by the tenant will be received by NRI in his Indian bank account or the account of the country where he is residing.

For Example – XYZ pays Rs. 30000 as monthly rent to his NRI Landlord. He has to mandatorily deduct TDS at 30% or Rs. 9000 before transferring the money to the Landlord’s account. XYZ also needs to submit form 15CA online to the income tax department. 15CA form is submitted by every person online who is sending a remittance to a Non-resident Indian. In some of the cases, Certificate from Chartered accountant is also required to be filed in the FORM 15CB before uploading form 15CA online. 15CB contains payment details, TDS rate, TDS deduction, nature and purpose of remittance, DTAA agreement (If applicable). Form 15CB should be certified by the Chartered accountant.

When Form 15CB is not required?

Form 15CB is not required in the following situations -

  • If the remittance amount does not exceed Rs. 500000 in a financial year. In this case, you need to submit only Form 15CA online.
  • If lower TDS has to be deducted on the order of AO and a certificate is received under Section 197
  • It is also not required in case transaction falls under rule 37BB of the income tax act where 33 items are listed.

The 33 items listed under 37BB of the income tax act are as follows –

 

Rule 37BB
SL. No.
Nature of Payment
1 Indian investment abroad -in equity capital (shares)
2 Indian investment abroad -in debt securities
3 Indian investment abroad-in branches and wholly owned subsidiaries
4 Indian investment abroad -in subsidiaries and associates
5 Indian investment abroad -in real estate
6 Loans extended to Non-Residents
7 Advance payment against imports
8 Payment towards imports-settlement of invoice
9 Imports by diplomatic missions
10 Intermediary trade
11 Imports below Rs.5,00,000 - (For use by ECD offices)
12 Payment- for operating expenses of Indian shipping companies operating abroad.
13 Operating expenses of Indian Airlines companies operating abroad
14 Booking of passages abroad - Airlines companies
15 Remittance towards business travel.
16 Travel under basic travel quota (BTQ)
17 Travel for pilgrimage
18 Travel for medical treatment
19 Travel for education (including fees, hostel expenses etc.)
20 Postal Services  
21 Construction of projects abroad by Indian companies including import of goods at project site
22 Freight insurance – relating to import and export of goods
23 Payments for maintenance of offices abroad
24 Maintenance of Indian embassies abroad
25 Remittances by foreign embassies in India
26 Remittance by non-residents towards family maintenance and savings
27 Remittance towards personal gifts and donations
28 Remittance towards donations to religious and charitable institutions abroad
29 Remittance towards grants and donations to other Governments and charitable institutions established by the Governments.
30 Contributions or donations by the Government to international institutions
31 Remittance towards payment or refund of taxes.
32 Refunds or rebates or reduction in invoice value on account of exports
33 Payments by residents for international bidding.

Except these cases, all remittances made by any individual outside India must take a certificate from a CA in form 15CB and submit form 15CA to the income tax department online after receiving the certificate.

Income from Other Sources

Any interest earned from fixed deposits and savings deposits by an NRI from an Indian bank account will be taxable in India. Interest on NRE and FCNR account is tax exempt whereas Interest on NRO account is fully taxable.

Income from Business and Profession

Any income earned by an NRI from a business in India is taxable as per Indian tax laws.

Income from Capital Gains

Any capital gain made by an individual on transfer of capital asset in India will be taxable in India only. Capital gains on investment of shares or securities in India will also be taxable in India.

For Example – In case you sold a property and earned a big capital gain from it, you need to deduct TDS at 20%. However, you are also allowed to claim exemption as per section 54 by making investment in house property or capital gain bonds as per section 54EC.

Special Provision Related to Investment Income

20% tax is levied on an NRI in case he invests in Indian assets. If the special investment made in the assets of the firm is the only income of an NRI and TDS is already deducted on that income, there is no need to file income tax return.

Which Investments Qualify for Special Treatment?

Investments made in the following Indian assets acquired in foreign currency qualify for special treatments:

  • Income earned from shares of public or private limited Indian company
  • Deposits made with banks and public companies
  • Debentures issued by a public-listed Indian company (not applicable on private companies)
  • Any central government security
  • Other central government assets specified in the official gazette

At the time of calculating investment income, No deduction is permissible under section 80.

Special Provision Related to Long-Term Capital Gains

Any long term capital gain obtained from the sale of transfer of foreign assets is not liable for deduction under Section 80 but you are having the right to avail exemption on profit under Section 115 F when the profit is reinvested back into:

  • Shares of an Indian company
  • Deposits with banks and Indian public companies
  • Debentures of an Indian public company
  • Securities of Central Government
  • NSC VI and VII issues

If the cost of new asset is less than net consideration, capital gains are exempt proportionately.Kindly keep in mind that in case new asset purchased is transferred or sold back within 3 years, the exempted profit will be added to the income from sale/transfer earned annually. The benefits listed above may be available to the NRI even when he/she becomes a resident – until the asset is converted into money and upon declaration submission for the application of the special provisions to the assessing officer by an NRI. The NRI may have the option to opt out of these special provisions. In such cases, income (investment income and LTCG) will be charged to tax under the usual provisions of the Income Tax Act.

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