The taxation laws are favorable for the NRIs to make it easier for them to bring their foreign earnings to India. But understanding the IT laws can be challenging for someone who has recently moved to a foreign country. Check out this post to understand the basics of tax laws for NRIs in India.
Taxation is a crucial part of planning personal finances not only for resident Indians but NRIs too. While the tax laws are favorable for the NRIs to facilitate the easy flow of foreign funds to India, there are still several things that a non-resident should know to comply with the Indian tax laws effectively.
If you’ve recently moved to a foreign country and want to know about NRI taxation, you should first get the basics right. Here are some of the tax fundamentals every NRI should know-
- Confirming Your Residential Status
If you’ve recently moved to a foreign country, are you sure that your residential status as per the IT department of India is now that of an NRI? According to FEMA, a resident Indian is someone who has-
- Lived in India for at least 182 days during the financial year, or
- Lived in India for at least 60 days in the last year, and at least 365 days (1 year) in the preceding 4 years.
- Income Tax for NRIs
Once you’ve confirmed your NRI status, the next thing you should know about is your income tax liabilities. According to the NRI income tax rules, NRIs are should to pay taxes only on the income accrued or earned in India.
For NRIs, income tax is applicable on-
- Capital gains generated from asset transfer in India
- Salary for providing services in India
- Income from FD (Fixed Deposits) or savings bank account
- Rental income from real estate
- Returns Filing for NRIs
If the Indian income of an NRI is more than Rs. 2.5 lakhs in a financial year, then just like resident Indians, he/she also needs to file tax returns in India. The due date for filing ITR is 31st July unless extended by the government.
Also, if the estimatedincome tax for NRI in Indiais more than Rs. 10,000 in a financial year, he/she will have to pay advance tax.
- Tax Deductions for NRIs
Just like resident Indians, there are tax deductions for NRIs too. For instance, under Section 80C, NRIs can claim a maximum deduction of up to Rs. 1.5 lakhs in a financial year for all the eligible expenses and investments. Life insurance premiums, ELSS investment, child’s tuition payment, etc. are eligible for 80C NRI income tax deductions.
Even under Section 80D, NRIs can claim a tax deduction of up Rs. 25,000 for the premiums paid towards a health insurance policy purchased for themselves, spouse, or children. The deduction limit is up to Rs. 50,000 for premiums paid on health insurance purchased for senior parent/s.
Understanding NRI Taxation in India
Taxes are not easy, and it can take some time for you to understand the intricacies. But to get to the more complicated aspects of taxation, it is crucial to first get the basics right. Keep the points mentioned above in mind if you’ve recently moved to a foreign country and it will be easier for you to understand the taxes.
An NRI account from a reputed Indian bank is highly recommended for NRIs as it can provide them a hassle-free and smooth banking experience. Some of the top banks also offer a wide range of products like home loans, life insurance, health insurance, ELSS funds, and more that are eligible for tax deductions and can help NRIs reduce their income tax liabilities in India.