With India’s rapidly growing economy, many Non-Resident Indians (NRIs) are keen on investing in the country. However, taxation on such investments is an important consideration. The Indian government has specific tax laws for NRIs under the Income Tax Act, 1961 that differ from those applicable to resident Indians.
Understanding these rules is essential to optimize tax efficiency and ensure compliance.
As per the Income Tax Act, 1961, an individual is considered an NRI if they fulfill any of the following conditions:
They have spent less than 182 days in India during the financial year (April 1 - March 31), OR
They have spent less than 60 days in India during the financial year AND less than 365 days in India in the past four years.
NRIs are taxed in India only on the income they earn in India. The following sources of income are taxable:
If received in India or for services rendered in India.
Rental income from property in India is taxable after standard deductions.
Profits from the sale of property, shares, or mutual funds are taxed as per capital gains tax rates.
Interest earned on NRO accounts is taxable, whereas interest on NRE and FCNR accounts is tax-free.
If an NRI runs a business in India, the income is taxable.
|
Income Slab |
Tax Rate (Old Regime) |
Tax Rate (New Regime) |
|
Up to ₹2,50,000 |
Nil |
Nil |
|
₹2,50,001 - ₹5,00,000 |
5% |
5% |
|
₹5,00,001 - ₹10,00,000 |
20% |
10% |
|
Above ₹10,00,000 |
30% |
30% |
NRIs cannot avail the benefits of the new tax regime’s rebates unless they file taxes as a resident.
NRIs are subject to higher TDS rates on various types of income:
TDS at 20% on long-term capital gains and 30% on short-term gains.
TDS at 30% deducted by the tenant.
TDS on capital gains depends on holding period and asset type.
TDS at 30%.
NRIs can claim deductions under various sections:
Deductions up to ₹1.5 lakh for investments in ELSS mutual funds, ULIPs, PPF (if opened before NRI status), life insurance, etc.
Health insurance premium deductions up to ₹25,000 (₹50,000 for senior citizens).
Tax deduction on interest paid for an education loan.
Exemptions on capital gains from property sales if reinvested in another property or specified bonds.
Many NRIs earn income in both India and their country of residence, leading to potential double taxation. India has signed DTAA agreements with over 85 countries, allowing:
Income taxed in one country is exempted in another.
Taxes paid in India can be claimed as a credit in the country of residence.
Taxation for NRIs in India is structured yet complex. Understanding income classification, tax slabs, exemptions, and DTAA benefits can help NRIs minimize tax liability while staying compliant. Consulting a tax expert and staying updated with RBI and IT department guidelines ensures smooth financial transactions.
