NRI Taxation in India
NRI taxation in India is governed by the Income Tax Act, 1961. NRIs (Non-Resident Indians) are taxed only on income earned or received in India. Foreign income is not taxable unless the individual qualifies as a resident.
Residential Status: The taxability is based on residential status, determined by physical presence in India during the financial year. A person is considered a resident if they spend 182 days or more in India, or 60 days in the current year and 365 days over the last four years.
Taxable Income: NRIs must pay taxes on the following:
- Salary for services rendered in India
- Rent from Indian property
- Capital gains from Indian assets
- Interest from NRO accounts (NRE and FCNR account interest is tax-free)
Deductions: NRIs can claim deductions under sections 80C, 80D, 80E, 80G, and 80TTA. For example, they get up to ₹1.5 lakhs deduction under Section 80C, though not all investments are allowed (like PPF or NSC).
Capital Gains: Long-term capital gains are taxed at 12.5% with exemptions under Sections 54, 54EC, and 54F. TDS is applicable when property is sold by an NRI.
Compliance: NRIs must file ITR if their Indian income exceeds exemption limits (₹2.5 lakh for old regime, ₹4 lakh under new regime). Filing is advisable even below limits to claim TDS refunds. Late filing can attract penalties.
Advance Tax and TDS: If tax liability exceeds ₹10,000, NRIs must pay advance tax. TDS applies to rent (30%), property sale (12.5%), and dividends (20%).
Double Taxation: NRIs can avoid double taxation under DTAA using exemption or credit methods. Section 89A helps with tax relief on foreign retirement funds.
ITR Forms: NRIs can use ITR-2 or ITR-3 based on income type; ITR-1 and ITR-4 are not permitted.
