NRI Taxation: Decoding tax implications for NRIs

You have moved to a vibrant city abroad, immersing yourself in new opportunities and experiences. While you are busy adapting to life in a new country, an important financial aspect needs your attention: taxation. As a Non-Resident Indian (NRI), understanding the complexities of tax obligations can be challenging, but this article will help you clear all your doubts.

The Foreign Exchange Management Act (FEMA) defines the criteria for determining whether an individual is a Resident Indian or a Non-Resident Indian.

An individual is considered a Resident Indian if:

1. They have spent at least 182 days in India during the financial year or
2. They have spent at least 60 days in India in the current year and 365 days in the previous four years.

However, special rules apply:

• For those who leave India for employment or as part of an Indian merchant ship crew, the requirement changes to spending at least 182 days in India.
• For Indians or Persons of Indian Origin (PIO) visiting India from abroad, the requirement is also 182 days.

If you meet either of these conditions, you are classified as a Resident Indian. If not, you are considered a Non-Resident Indian (NRI).

If you reside and work abroad, the NRI income tax you pay will depend on your residential status for the year. If you fit the Resident Indian criteria, your total global income is taxable under Indian tax laws. But if your status for the year is ‘NRI,’ only the income earned or accrued in India is taxable.

Here’s what is subject to NRI income tax:

• Salary received for services provided in India (Global Income)
• Capital gains earned on the transfer of assets located in India
• Rental income from property owned in India
• Revenue from Fixed Deposits 
• Interest on Bank Savings Accounts 

Planning a Fixed Deposit? Click here to open one now!

As an NRI, consider using NRI Banking from HDFC Bank for a smooth and hassle-free banking experience.

NRIs can benefit from tax deductions under Section 80C, with a maximum allowable deduction of up to ₹1.5 lakh. Here’s a breakdown of the deductions available:

Deductions under Section 80C

• Life Insurance Premium Payments: You can claim deductions on premiums paid for policies in your name, your spouse’s, or your children’s names, provided the premium is less than 10% of the sum assured.

• Repayment of Principal on Property Loan: Deductions are available for EMI repayments on loans taken for purchasing or constructing residential property. This includes costs like registration fees, stamp duty, and other related expenses.

• Children’s Tuition Payments: Tuition fees paid for full-time education of up to two children at schools, colleges, or universities qualify for deductions.

• Investment in ELSS: Contributions to Mutual Funds' Equity Linked Savings Schemes (ELSS) up to ₹1.5 lakh are eligible for deductions under Section 80C.

Deductions under Section 80D

• Health Insurance Premiums: NRIs can claim a deduction for premiums paid for  Health Insurance under Section 80D. This includes premiums up to ₹25,000 for self, spouse, and dependent children. For senior citizens, the deduction limit increases to ₹50,000.

Double taxation happens when the same income is taxed in two different countries. For NRIs who earn income in one country while maintaining citizenship in another, paying taxes on the same income in both locations can lead to paying taxes on the same income.

India has signed Double Tax Avoidance Agreements (DTAA) with numerous countries to address this. These agreements help prevent this issue by allowing NRIs to avoid paying taxes twice on the same income. In order to benefit from these agreements, it's essential to keep thorough records of taxes paid in India as proof.

As an NRI, it's important to be cautious with your taxation to avoid potential pitfalls. The tax regulations for NRIs differ from those for Resident Indians, and you might end up paying double tax if you're not well-informed about the rules. Understanding these tax policies and leveraging available benefits can help you manage your tax liabilities more effectively.

Under Section 80C of the Income Tax Act 1961, you can reduce your tax liability by investing in a Tax Saving Fixed Deposit (FD). With this investment, you can claim a deduction of up to ₹1.5 lakh annually. Use an  FD calculator to determine your investment's potential returns and benefits.

* 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.