Relocating to another country can be an exciting yet complex journey, particularly when it comes to managing your financial and tax obligations. For Indian citizens moving abroad, understanding the income tax rules is crucial to ensure compliance with both Indian and international tax laws. This article presents in-depth information about the income tax rules applicable when moving outside India, helping you navigate this transition smoothly.
Points to be kept in mind and steps to be taken by a person leaving India:
It is crucial to carefully plan your departure from India to establish your status as a Non-Resident Indian (NRI) under the Income Tax Act of 1961. This ensures that only your Indian income is subject to tax, while any income earned abroad will not be taxable in India for the financial year of departure (i.e., from April 1 to March 31).
Note: If an Indian Citizen is leaving India for employment abroad during FY 2020-21, he shall be NRI as per the Act if he leaves India on or before September 28, 2020 (except for certain cases where Indian citizens are considered as deemed resident of India, irrespective of their number of days of stay in India).
Upon leaving India for good, one must inform Bankers about the change in status to “Non-Resident” under FEMA and re-designate the resident bank account to Non- Resident Ordinary (NRO) Account.
Further, NRIs are eligible to open Non-Resident External (NRE) and Foreign Currency Non-Resident (FCNR) accounts.
Note: Interest earned from such NRE a/c and FCNR deposit is exempt from tax in India.
If NRI’s income is taxable in India and Foreign countries, they may claim the benefit of DTAA, if available. A DTAA is a bilateral agreement between two countries to avoid/mitigate double taxation of income in both countries (i.e. double taxation of the same income). Where there is no DTAA or if the said income is taxable in both countries, one may be eligible to claim a Foreign Tax Credit in the “resident” country.
Note: If any benefit of lower tax is available under DTAA, NRI may submit a Tax Residency Certificate of his resident foreign country and other required documents to the Bank/Broker, etc., in India to deduct tax at a lower rate (as prescribed in respective DTAA).
In cases where tax deducted is at a higher rate and actual tax liability is much lower as per the Act, NRI may apply to the Indian Income-tax Department for TEC authorising the Payer of income to deduct tax at a lower/Nil rate as applicable.
An NRI is generally liable to file an ITR if his/her taxable income in India during the relevant Financial Year (FY) (1st April to 31st March) exceeds the basic exemption limit (i.e. ₹2,50,000/- for FY 2020-21), subject to certain conditions.
Note: By filing ITR in India, NRI can claim a refund of taxes deducted over and above his/her actual tax liability in India.
NRI must retire from the firm/company if it carries on the business of real estate, Nidhi, chit fund, lottery, betting, gambling, manufacturing of cigars etc., trading in TDRs, etc., as per FEMA provisions.
When a person becomes NRI, his PAN jurisdiction must be transferred from the Domestic Taxation Ward to the International Taxation Ward. This process of transfer is typically referred to as ‘PAN Migration’.
Upon leaving India, NRIs can continue to hold or transfer any security, immovable property situated in India, which was acquired by him when he was resident in India or inherited by him from a person resident in India.
Once he leaves India and becomes NRI, he may be allowed to remit/repatriate funds from balances held in NRO account up to One Million USD per Financial year (viz- a- viz. USD 2,50,000/- allowed by Resident individual per Financial Year under the Liberalised Remittance Scheme)
Note: Funds from the NRE account are freely repatriable without any restriction.
Wondering how to manage your investments after migrating? Read more on NRI Investment tips in India to know more!
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* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.