Tax Guidelines for Non-Resident Indian
How to determine the residential status of an individual?
The conditions to be called as an Indian resident are:
Staying in India for at least 6 months or 182 days during a
Staying in India for 2 months/60 days in last financial year AND
have stayed for whole year/365 days in last four years.
For Indian citizen working in abroad or a crew member of Indian Ship then the first condition will applicable to
them. Also, a PIO visiting in India will be also treated as an Indian citizen under the first condition. PIO are
the ones, any of his parents or Grandparents born in undivided India.
Non-Resident Indian (NRI)
As per section 115C of the Income Tax Act, 1961, any individual, who is either a citizen of India or person of
Indian origin but does not qualify as a “resident” Indian, is considered to be a Non-Resident Indian (NRI).
Tax Treatment of NRI Income
Residential status is the main cursor of Income Tax liability in India for an NRI. For a resident, their Global
income is taxable in India. For NRI's, income earned within India is taxable income.
Examples of Income earned and are taxable income in India:
Salary received in India
Salary for service provided in India
Income from an Indian house property
Capital gains on transfer of Indian assets
Income from Fixed Deposits
Interest on savings bank account
Income that is earned outside India is not taxable income in India. If you earned interest on an NRE account and
FCNR account is non-taxable in India. But interest earned on NRO account is taxable in India for an NRI.
Is it mandatory for NRIs to file ITR?
Any NRI who earn more than INR 2,50,000 in a Financial Year is liable to e-file income tax return in India.
NRI's need to e-file income tax returns for the following reasons:
To claim a refund
To carry forward a loss
The only income earned from selling an asset in a financial year where TDS has been deducted are not required to
e-file income tax return for that year
Tax Deductions and Exemptions for NRIs
Similar to residents, NRIs are also entitled to claim various deductions and exemptions from their total
income. These have been discussed here:
NRIs can avail of the tax deductions under Section 80C. Currently, a maximum deduction of up to Rs 1.5 lakh is
permissible for tax deductions under the said section.
Deductions under Section 80C
Life insurance premium payment
Repayment of principal on loan for the purchase of property
Children’s tuition payment
Investment in ELSS
Deductions under Section 80D
As an NRI, you can also claim a deduction on premium paid for health insurance under Section 80D of the Income
Tax Act, 1961.
Deductions under Section 80E,
NRIs can also claim deduction on interest paid against education loans
Deductions under Section 80G
NRIs also claim deduction on charity and donations.
Deductions under Section 80TT-A
A, NRIs also claim deduction on interest earned on money lying in savings bank accounts. There is a cap of up to
Rs 10,000 on that income, though, which is applicable to both residents and non-residents.
What are the deductions not allowed to NRI?
Unlike resident Indians, NRIs do not enjoy deductions on some investments under Section 80C of the I-T Act.
Investment in the Public Provident Fund (You can, however, maintain your PPF accounts if you opened them while
they were a resident.)
Investment in the National Savings Certificate
Investments in five-year Post-Office Deposit Scheme
Investment in senior-citizen savings scheme
Investment in the Rajiv Gandhi Equity Savings Scheme
Deductions are given to differently-abled people under Section 80DD, Section 80DDB and Section 80U
How to Avoid Double Taxation?
India has signed a pact with over 80 countries known as the Double Taxation Avoidance Agreement so that NRIs do
not end up paying taxes twice – once in Indian and once in the country of their residence – on the same income.
Under the provisions of the treaty, there are two ways to ensure there is no overlapping of tax payments. Under
the exemption method, a person is taxed in one country and exempted in another. In the credit input method, you
income is taxed in both countries, and the exemption is claimed in the country of your current
Is having an Aadhaar must for NRI, too, for filing taxes?
The answer is no. While resident Indians are required to quote their Aadhaar numbers for filing of taxes under
Section 139AA of the Income-Tax Act, this rule does not apply to NRI. The Central Board of Direct Taxes has said
that NRI are not “residents” under the provisions of the Aadhaar Act, 2016.
Why Should an NRI Open NRE or NRO Account?
The Government of India has permitted NRIs to open rupee accounts in India in order to repatriate funds from
their home countries. Many NRIs maintain a Rupee account in India for Basically there are two options available
with NRI interested in opening bank account in India – NRE or NRO account repatriate overseas earned money back
to India or wants to keep Indian based earnings in India
Taxation of NRI and TDS applicability of NRO / NRE Account
The interest earned on NRO Account as well as the credit balances in account are taxed under the account
holder’s tax bracket in India. The Bank will upfront deduct 30% TDS on interest Income which an NRI can file its
return and Claim Refund if he is falling within Basic exemption limit. On the other hand, interest earned on the
NRE account is totally exempted from income tax and no TDS is deducted on it.
How to Transfer Money from NRO Savings To NRE Savings Account?
A person making a remittance (a payment) to a Non Resident or a Foreign Company has to submit Form 15CA. This
form is submitted online. In some cases, a certificate from a Chartered Accountant in Form 15CB is required
before uploading Form 15CA online. In Form 15CB, a CA certifies details of the payment, TDS rate and TDS
deduction as per section 195 of the Income Tax Act, if any DTAA (Double Tax Avoidance Agreement) is applicable,
and other details of nature & purpose of the remittance.
How to choose between an NRE & NRO Account?
An NRE account can be opened if you want to transfer your foreign income to India and want to avoid taxation
If you mainly have income from your employment and investments abroad, it is best to open an NRE account to
freely move your funds between India and your country of residence. However, if a significant chunk of your
earnings are from investments and assets in India, being an NRI, you will only be able to deposit those earnings
in NRO accounts. If a person holds both these accounts, the amount can also be transferred within these accounts
subject to required documentation. Lastly, if you know you will not need your funds anytime soon, it’s best to
lock it away in an FCNR term deposit and let you money work for you.