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 financial year

Or

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. These include:
  • 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 residence.

    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 liabilities.

    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.