Taxable Income of an NRI
Income from salary
Your salary income is taxable when you receive your salary in India or someone does on your behalf. Therefore, if you are an NRI and you receive your salary directly to an Indian account it will be subject to Indian tax laws. This income is taxed at the slab rate you belong to.
Income from Salary will be considered to arise in India if your services are rendered in India. So even though you may be an NRI, but if your salary is paid towards services provided by you in India, it shall be taxed in India.
In case your employer is Government of India and you are the citizen of India, Income from salary if your service is rendered outside India is also taxed in India. Note that income of Diplomats, Ambassadors is exempt from tax.
Ajay was working in China on a project from an Indian company for a period of 3 years. Ajay needed the salary in India to take care of the needs of his family and make payments towards housing loan. However, since salary received by Ajay in India would have been taxed as per Indian laws, Ajay decided to receive it in China.
Income from House Property
Income from a property which is situated in India is taxable for an NRI. The calculation of such income shall be in the same manner as for a resident. This property may be rented out or lying vacant.
An NRI is allowed to claim standard deduction of 30%, deduct property taxes and take benefit of a interest deduction if there is a home loan. The NRI is also allowed deduction for principal repayment under section 80C. Stamp duty and registration charges paid on purchase of a property can also be claimed under section 80C. Income from House Property is taxed at slab rates applicable.
Nandini owns a house property in Goa and has rented it out while she lives in Bangkok. She has set up the rent payments to be received directly in her bank account in Bangkok. Nandini’s income from this house which is in India shall be taxable in India.
Rental payments to an NRI
A tenant who pays rent to an NRI owner must remember to deduct TDS at 30%. The income can be received to an account in India or the NRI’s account in the country he is currently residing.
Maria pays a monthly rent of Rs.30,000 to her NRI landlord. She must deduct 30% TDS or Rs.9,000 before transferring the money to the landlord’s account. Maria must also get a Form 15CA prepared and submit it online to the Income Tax Department.
A person making a remittance (a payment) to a Non Resident 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 and purpose of the remittance.
Form 15CB is not required when:
- remittance does not exceed Rs 50,000 (single transaction) and Rs 2,50,000 (in total in a financial year). Only Form 15CA is has to be submitted in this case.
- if lower TDS has to be deducted and a certificate is received under section 197 for it or lower TDS has to be deducted by order of the AO.
Neither is required if the transaction falls under Rule 37BB of the Income Tax Act, where it lists 28 items.
In all other cases, if there is a remittance outside India, the person who is making the remittance will take a CA’s certificate in Form 15CB and after receiving the certificate submit Form 15CA to the government online.
Income from other sources
Interest income from fixed deposits and savings accounts held in Indian bank accounts is taxable in India. Interest on NRE and FCNR account is tax free. Interest on NRO account is fully taxable.
Income from business and profession
Any income earned by an NRI from a business controlled or set up in India is taxable to the NRI.
Income from capital gains
Any capital gain on transfer of capital asset which is situated in India shall be taxable in India. Capital Gains on investments in India in shares, securities shall also be taxable in India.
If you sell a house property and have a long-term capital gain, the buyer shall deduct TDS at 20%. However, you are allowed to claim capital gains exemption by investing in a house property as per Section 54 or investing in Capital Gains Bonds as per Section 54EC.
Special provision related to investment income
When an NRI invests in certain Indian assets, he is taxed at 20%. If the special investment income is the only income the NI has during the financial year, and TDS has been deducted on that, then such an NRI is not required to file an income tax return.
What are the investments that qualify for special treatment?
Income derived from the following Indian assets acquired in foreign currency:
- Shares in a public or private Indian company
- Debentures issued by a publicly-listed Indian company (not private)
- Deposits with banks and public companies
- Any security of the Central Government
- Other assets of the Central Government as specified for this purpose in the official gazette.
No deduction under Section 80 is allowed while calculating investment income.
Special provision related to long-term capital gains
For long-term capital gains made from the sale of transfer of these foreign assets, there is no benefit of indexation and no deductions allowed under Section 80. But you can avail an exemption on the profit under Section 115 F when the profit is reinvested back into:
- Shares in an Indian company
- Debentures of an Indian public company
- Deposits with banks and Indian public companies
- Central Government securities
- NSC VI and VII issues
In this case, capital gains are exempt proportionately if cost of new asset is less than net consideration. Remember, if the new asset purchased is transferred or sold back within 3 years, then the profit exempted will be added to the income in the year of sale/transfer.
The benefits above may be available to the NRI even when he/she becomes a resident – until such an asset is converted to money AND upon submission of a declaration for the application of the special provisions to the Assessing Officer by the NRI.
The NRI may choose to opt out of these special provisions and in that case the income (investment income amd LTCG) will be charged to tax under the usual provisions of the Income Tax Act.
