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

NRIs are not liable to pay any taxes in India if they are not earning any income here. However, if they are making a certain profit in India (even if it is through money lying in savings account which is known as passive income), that particular part of the income is taxed in India while the remaining part of the income which the NRIs earn are taxed in the country of their residence. Gains made through the sale of property, capital gains on transfer of asset situated in India, interest earned on investments, profits gained through business, etc are taxable income for which the NRIs are taxed.

Salary Income

Income you earn by the way of your salary in India or for that matter someone receives your salary income on your behalf, you are liable to pay taxes on it. Therefore, an NRI’s salary received in an Indian bank account will be governed by Indian Tax laws. You will have to pay the taxaccording to your tax slab rate. Income from salary is considered to have originated in India if the job is done in India. That means an NRI who has rendered a service in India will be taxed as per extant Indian law. Even a resident of the country who has rendered services outside the country will have to pay taxes as per Indian tax laws. It is worth noting that income of Diplomats, Ambassadors are not liable to pay taxes on their income. Abdul is working in USA on an IT project for an Indian company. The salary will be taxed as per Indian law if Abdul decides to receive his salary in India.

Income generated by House Property

If you are an NRI and you have a property in India, then any income derived from it will be taxable in India. A house property could be your home, an office, a shop, a building or some land attached to the building like a parking lot. It is important to note that according to The Income Tax Act, there is no differentiation between a commercial and a residential property. All types of properties are taxed under the head ‘income from house property’ in the income tax return. An owner for the purpose of income tax is its legal owner, someone who can exercise the rights of the owner in his own right and not on someone else’s behalf. When a property is used for the purpose of business or profession or for carrying out freelancing work – it is taxed under the ‘income from business and profession’ head. Expenses on its repair and maintenance are allowed as business expenditure.

There is no differentiation between a resident and an NRI when it comes to calculation of such income. An NRI can lay claim to a standard deduction of 30%, and demand deduction on the interest rate for the loan that was taken for a home. Under Section 80C, NRI can claim exemption for loan repayments. The exemption is also allowed on stamp duty, registration fees and other expenses that the person may have to incur to transfer the property in his own name. Please note that this income is taxed at the slab rate applicable. Prakash owns flat in Chennai, which he has put on rent as he lives in London. Prakash income from this house which is located in India will be taxed as per the prevalent Indian law.

Rental Paid to an NRI

A tenant who stays in a rented accommodation owned by an NRI and pays that NRI rent should not forget to deduct TDS at 30%. The money that the NRI receives as rent can be transferred to his own account in India or to an account in the country where he is presently residing. The TDS of 30 per cent deducted can be best explained with an example. Ajith stays in a rented accommodation owned by an NRI and his rent is fixed at INR 45,000. He must deduct 30% TDS or INR 15,000 before the money to the landlord’s account is transferred. Ajith is also required by law to get a Form 15CA for online submission to the Income Tax Department. This is a form which a person making a remittance (a payment) to an NRI has to submit to the IT department. However, under certain circumstances a certificate from a chartered accountant known as Form 15CB is required before the online submission of Form 15CA.

However, there is no need for a tenant to fill and submitform 15CB under following circumstances:

• The total remittance or payment shall not exceed INR 50,000 for a single transaction and it shall not be in excess of INR 2,50,000 for the entire financial year. If this criterion is met, a tenant is only required to submit form 15CA.
• If lower TDS must be deducted and a declaration is gotten under Section 197 for it or lower TDS must be deducted by request of the AO.
• Also, Form 15CA and 15CB will be NOT be required to be furnished by an individual for remittance, which does not require RBI approval
• Also, neither form 15CA nor form 15CB is necessary if the transaction is under Rule 37BB of the Income Tax Act where it initially listed 28 items but now has been expanded to include 33 including payments for imports.

Income derived from other Sources

An NRI has to pay taxes on interest generated by fixed deposits and savings accounts in Indian banks. NRIs are exempted from paying taxes on interest generated by NRE and FCNR account. Interest on NRO account, however, is not tax exempt.

Income from Business and Profession

Any type or form of income that an NRI earnsif he/she has set up a business venture in India or is in a control of one is taxable as per the extant Income Tax rules.

Tax laws applicable on Capital Gains

Capital gain accruing from transfer of capital asset will be taxed in India. Capital gains arising from an NRI’s investment in shares, securities are also liable for taxation in the country. If an NRI enjoys long term capital gain by selling a house property, the buyer shall deduct 20 per cent TDS. However, as an NRI, you are allowed to claim exemption by investing in a house property as per Section 54 or investing in capital gain bonds as per Section 54EC.

Special Provision Related to Investment Income

An NRI investing in certain Indian assets is taxed at 20%. However, the NRI is exempted from filing an income tax return if the NRI does not have any other income apart from it during the financial year, with TDS deduction already carried out.

Special Treatment Investments

Income derived from the following Indian assets acquired in foreign currency qualify for special treatment

1. Shares purchased of a public or private Indian company
2. Debentures that have been issued by a publicly-listed Indian company. Not applicable for private company
3. Deposits made by the NRI with public companies and banks
4. Securities that the central government has issued
5. Other assets of the central government as specified for this purpose in the official gazette

Also, please note that there is no provision for deduction under Section 80Cwhen investment income is being calculated.

Special Provision Related to Long-Term Capital Gains

Please note that you are not entitled for any deduction under Section 80 for long-term capital gains accrued from the sale or transfer of these foreign assets. However, Section 115 F allows you to claim an exemption on the profit that you have made when the profit is ploughed back into:

Central Government securities

NSC VI and VII issues

Shares issued by an Indian company

Debentures of an Indian public company

Deposits made with Indian public companies and banks