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nri taxation

NRI Taxation In India & Tax Benefits

Paying a percentage of your earning as taxes to your country’s coffer contribute towards the nation’s functioning and development. Income Tax is levied on all sources of income other than agricultural income. Income taxes are applicable on all the resident citizens who earn their income in India. If you are an NRI (Non Residential Indian), you are only liable to pay taxes for the income that is earned in India. Thus the Income tax rules for the NRIs differ from that of the resident citizens.

 

When are NRIs taxed on their income?

Income tax is payable by every individual citizen. However, your residential status is an important aspect when income tax is being discussed. Your residential status itself determines if at all you are required to pay taxes or not.

The Income tax department classifies an individual to be a non-resident when:

  • You reside outside India for a period of 182 days or more during the relevant previous year.
  • You are not present in India for 60 days or more during the previous year and again for a combined total of 365 days or more during the previous 4 years prior to the previous year.

Your status of being a resident or a non-resident Indian depends on the above criterion. For example, while you are an NRI, you were physically present in India for more than 182 days during one financial year. In such a case you will be considered as a resident when it comes to taxes and you are obliged to pay taxes to the Indian government for the income earned in India, if any for that year. Thus an NRI is liable to be taxed only for income or capital gains earned in India.

What can an NRI be taxed on while in India?

Since the earnings made abroad do not come under the Indian Income Tax acts, NRIs cannot be taxed for the same. Your earningswhile abroad are completely tax free considering that you do maintain the non-resident status. However if any income or capital gains arise from within Indian shores, you are liable to pay taxes for the same.

Taxable incomes for NRIs include:

Salary: Income earned from your salary in India or income received on your behalf is taxable.

Property and Assets: Any income or capital gain that you generate from the sale/ rent or lease of a valued property or an asset based in India will be taxed as per the Income Tax rules.

Securities and Investments: Income or capital gains from long-term or short term investments are liable to be taxed.

Non-Residential Indians are liable to pay taxes to the government on their income from salaries, assets or from investments or securities held in India. If you are an NRI with your income sourced in India, you have to file your tax returns. Presently, as per Income Tax Act,1961 and Foreign Exchange Management Act (FEMA), you qualify to pay taxes in case you fulfill either of the following conditions:

  1. Your taxable income in India during a particular financial year is more than the exemption limit of Rs 2 lakh.
  2. You have earned short-term or long term capital gains from sale of any investment or property, even if the gains are less than the exemption limit.

 

NRI Tax Exemption: Are there any Tax exemptions for NRIs?

NRIs are taxed as per the tax rate and slabs prescribed for resident Indians below 60 years irrespective of whether he is a senior citizen or not. All NRIs are required to pay taxes in order to avail credit of Tax Deducted At Source (TDS).

As far as Tax Returns are concerned, NRIs cannot file for tax returns under the following circumstances:

  • If taxable income consists of only investment income or long term capital gains.
  • When the tax has already been deducted at source, on such income.

If you are a Non-Resident Indian, these taxation basics are good to know so that you are aware of when you are liable to pay taxes, how taxes are levied on your income earned in India, what are the tax deductions that you get as well as how tax returns work. Most importantly, it is the right thing to do if you pay taxes (when liable) diligently as they enable the government to meet their expenses as well as fund the country’s development.

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