Income tax for NRI in India is not very complex but few rules really frustrate NRIs… Let’s check everything that you want to know about Indian Tax For NRI.
An Indian is considered as a non-resident (NRI) when he/she has stayed for less than 182 days of the current financial year in India or if the person has been in India for less than 60 days in the current financial year and has been in India for less than 365 days in the last 4 years.
NRIs are usually working abroad and so their main source of income is in their resident country. But they might also earn income in India. It could be interest, dividends, rent, or even salary if they are abroad on an assignment for their company. It is important that such income is accounted for and tax returns are filed for the same.
Must Read- How NRIs Can Save Tax On Their Income In India?
Indian Tax For NRI
Let us look at the different types of income that an NRI can receive in India and the taxation rules around them.
Income received from the property as rent or as sale proceeds
If a tenant occupies the NRI’s property, the tenant deducts TDS at 30% of the rental income before paying the rent to the NRI. The rent is added to the NRI’s total income in India which will be taxed as per the income slab under which it falls. Municipal taxes, Standard deduction at 30%, the deduction for interest, and the principal amount of loan if any on the property should be considered for deduction. If the NRI has two properties, one will be considered as deemed let-out property and the NRI will have to pay tax on it.
An NRI who earns capital gains by selling a house property is liable to pay tax. Long-term capital gains are subject to a tax of 20%. Short-term capital gains are taxed at 30%. The gains are considered short-term if the house is sold within two years of purchase.
An exemption in tax payable is allowed if-
- The NRI invests in a house property as per Section 54 within one year before the date of transfer or 2 years after the date of transfer or complete construction of a house within 3 years after the date of transfer of the capital asset
- The NRI invests in capital gain bonds as per Section 54EC within 6 months of the date of transfer.
Bonus received in India while working abroad with a salary abroad
If you are transferred abroad for work and get a salary there but receive a bonus in India, the bonus is taxable in India under the Income Tax Act of India. But if DTAA is applicable and you prove that you are a tax resident of the country where you are working by getting a tax residency certificate there, you can claim a refund of the tax paid on the bonus in India. The bonus will then be taxable in the country of residence.
Read –NRIs wealth Management In India
Salary received in India while working on a ship in international waters for more than 182 days
A person working on a ship in international waters for more than 182 days is considered an NRI, but the salary is received in India and therefore it is taxable in India. (In 2017 there was some change in this but again in 2019 there were cases reported that the IT department is asking to pay tax. If you have some updates – please share)
If you are a software professional who has been sent to the US for a project. And if your remuneration consists of a stipend in the US and a salary in India, then the salary in India is considered as income received in India and therefore you have to file the appropriate tax returns for it and pay tax if required.
Interest income in NRO account
A Non-Resident Indian can open an NRO account with a bank in India. Interest on the NRO account is taxable, it will be added to the total income and taxed as per the income tax slab applicable.
Check – Difference Between NRE & NRO Account
Capital gains received from assets like Mutual Funds and Stocks
If an NRI earns capital gains from MFs and direct stocks, then tax is applicable. Here is an overview of the tax applicable –
|Asset||Tax Rate on Short-term Gains||Tax Rate on Long-Term Gains|
|Direct Equity||15%||10% (if the gains are more than Rs. 1,00,000)|
|Equity MFs||15%||10% (if the gains are more than Rs. 1,00,000)|
|Non-Equity MFs||Added to total income and taxed as per income slab||Listed funds – 20% (with indexation)
Unlisted funds -10% (w/o indexation)
Income from Business or Profession in India
Income earned by an NRI from a business or profession that is controlled or set up in India is taxable in India.
Some incomes that are exempt from tax –
- Gifts received from relatives irrespective of the value in monetary terms and, gifts up to the value of Rs. 50,000 received from a non-relative, beyond that, the gift amount is added to the total income and taxed as per the applicable tax rate. Read – NRI Gift Tax India
- Assets received by NRIs by way of inheritance are exempt from tax.
- Interest received in NRE and FCNR accounts is tax-free.
To summarise, income that has accrued or arisen or is deemed to have accrued or arisen in India for an NRI is taxable in India. So if you are an NRI, calculate the income received in India. If it is in the range of taxable income, file your tax returns and pay the tax due within the due date.
If you have any questions on India tax for NRI – add them in the comment section.
NRIs are taxed @ 20% on dividend they earn on their investment in equities in India. Can this be claimed as refund. Specially if they live in Gulf countries where is no local taxation ( DTAA is not applicable ).
For the better understanding kindly consult your tax advisor.
If you are not liable to pay tax as per your Tax bracket, you can claim the refund.
I’m NRI.. I have ST capital gains tax of 1 lac but gross total income including capital gains and salary in India is less than 2.5 lacs.. but the ITR form shows to pay tax of 15K on ST capital gains.. Should I pay tax being gross income <2.5 lacs?
As per my knowledge the short term capital gains cannot be adjusted in the basic exemption limit. and the tax on them has to be paid
Hi Hemant, Appreciate your regular inputs. Presume the NRI home owner can claim the TDS of 30% deducted by tenants, whilst filing the tax return? Appreciate the clarification in advance
If your income is less than 2.5 lakh in India – you can claim the refund. But I am not sure how it will be treated in your resident country – it will depend on DTAA.
I am an NRI and a postdoctorate in technology Ph.D., working and living in Saudi Arabia for the largest manufacturing company for 19+ years.
I have been out of India since 1995, pursued post-graduate studies from the USA. I was in there until 2001 and relocated to Saudi Arabia. About my current job profile, Apart from my regular job, I conduct various consultancy training, audits across the world during my vacation period ( after taking proper consent with my present employer).
I have earned substantial income over the years and parked my funds in Indian banks under NRE accounts. I have no rental income from India as I do not have any properties there, hence no taxable income arising from India.
As I understand, revenue generated interest in these banks are 100% tax-free and FEMA compliant. The earnings from personal audits are also parked along with my earnings from the current job in these banks.
I have a few questions:
Since I have a very good clientele network across the world, I have been earning forex (US$ & Euros and JPNY) thru my personal visits to client locations by issuing personal invoices. I have been issuing invoices in my name only. My question is: “am I liable to pay taxes in India on the income earned by foreign clients?” All monies (salaries and consultancy fees) are being transferred directly by my clients into my existing NRE accounts in India. Additionally, I also transfer my current salary received in Saudi Arabia each month.
Please advise if I can continue to receive monies (forex only) from my international client network. I cannot transfer the forex earnings into Saudi bank and then remit to India as per the prevailing restrictions of local banks in SAUDI.
I am taking up consultancy engagement with companies based in U.K, Japan, China and the USA, they will be depositing the consulting fee in Euros / USD into my NRE bank account directly. Since I am an NRI, will I have to pay taxes on this income?
Pramod Kumar, Aithal
Thanks for showing confidence & sharing this query but my suggestion is please have a word with any competent CA who understands NRI taxation. He will able to guide you & also take care of filings.
Try to open an offshore bank account in Dubai or Bahrain and receive your Forex in that account. Then transfer it to your NRE account. You will not have to pay tax in in this way.
Hi Hemant – I am now Non-resident, and employed overseas. unfortunately my employer paid money into my India NRO account rather than my overseas account. Am I liable to pay income tax on that even though the activity source was overseas (and indeed my contract states an overseas address). Thanks!
As per my viewpoint, your principal amount is taxfree but your interest earned on that amount is taxable.
Yes, It is taxable.
Is interest received in NRE account for an RNOR taxable?
Yes it is taxable
You talked so much, but did not answer specific to my question! A simple YES or NO would have sufficed.
I checked someone already replied to your comment.
Daily we get 20-25 comments – it’s impossible for me to reply to everyone.
Thank youMr Hemant.
Is the interest received in NRE account taxable for an RNOR?
Yes, it is taxable.
Hope they retain the Interest income earned on NRE Accounts (SB and Term deposits) and FCNR accounts as tax free
After all, such interest income are incomes derived in India
I(NRI, resident of Saudi) am investing in US Stocks by transferring money from my Saudi Bank Account. After I sold my stocks in US, I am planning to transfer the money from my Brokerage account(Stockal-DriveWealth US) to Indian NRE account. Do I have to pay capital gain tax in India ?
No, You don’t have to pay tax on it.
I still have doubts after reading the below link.
Any income which is received in India, during the previous year by any assessee, is liable to tax in India, irrespective of the residential status of the assessee and the place of accrual of such income .
Receipts means the first receipt: The receipt of income refers to the first occasion when the recipient gets the money under his own control. Once an amount is received as income, any remittance or transmission of the amount to another place does not result in receipt within the meaning of this clause at the other place .
This principle is of importance, firstly, in determining the year of receipt, and secondly, for ascertaining the incidence of taxation where it depends purely upon receipt of income. For instance, in the case of non-residents, their foreign income is not assessable, unless it is actually received in India. In their case, unless, at the time the money is received in India, it is received as income from an outside source, such receipt will not be an income receipt. If a non-resident had already received moneys outside India (in an earlier year or during the previous year) as income or exempt income and he was transferring the funds into India in the accounting year, such moneys will not count as income in the eyes of law
OCIs (not NRIs) who are citizens of a foreign country can take benefit of Double Taxation Avoidance Treaty and save tax in India on Pension etc because on such income, they have to pay tax in country of residence.
But procedure is long and tedious. First you need a Tax Residency Certificate (cost $ 85 in USA & wait 45 days) and then you file Form 13 (unlucky no.) in India and again wait for 45 days for a yes or no decision to reduce TDS. Refunds of tax pax already paid are unlikely. On top of that for Indian financial year you need two TRCs for 2 calendar years from USA.
Of course your love for India may also come in the way of taking that route. Further Indian tax men take a dim view of OCIs trying to find legal ways to avoid paying taxes in India on Indian income.
Not worth the trouble.
Thanks Mr Chhatwal for sharing your experience – hope this will help other readers. Bw I like your witty style 🙂
The first definition of NRI as given in the article is a subset of 2nd definition. Doesn’t make sense.
Thanks Mukesh – I will update that.