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NRI Taxation – NRI Taxation Structure In India| YES BANK

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Non-resident Indians, or NRIs, are not exempt from paying taxes on the income they earn in India. Therefore, Indians who have settled abroad should be aware of their tax obligations and what tax deductions they are eligible for.

Things to know about the NRI taxation structure in India.

1. Are you an NRI?

Before beginning to understand the NRI taxation structure in India, you first need to know who qualifies as an NRI. As per the Foreign Exchange Management Act (FEMA), an individual is considered a resident of India if any of the following conditions have been met:

  • The individual has lived in India for at least 182 days during the financial year. The Union Budget, 2020, has proposed to reduce this period to 120 days

  • The individual has lived in India for at least 60 days of the previous year, and at least 365 days in the preceding four years

If you satisfy any one of the aforementioned conditions, you will be considered an Indian citizen and taxed accordingly. Otherwise, you will be considered an NRI for all tax purposes.

2. Taxation structure for NRIs

As an NRI, if you reside and work abroad, the income tax you must pay depends on your residential status in India for the respective financial year. As a thumb rule, only the income that you earn or accrue on Indian soil is subject to taxation.

Here are some different types of incomes for NRIs and their tax implications:

  • Income from salary: Any salary received, or services provided, by an NRI in India is taxable under the prevailing tax laws. The only exceptions to this rule are the salaries earned by government diplomats and ambassadors.

  • Income from house property: Any rental income earned by an NRI via a house or property in India is taxable irrespective of whether the house or property has been rented out or remains vacant.

  • Income from business: Any income earned from a business venture that has either been set up or is controlled in India is taxable.

  • Income from capital gain: Income from capital gains on any investment in India is taxable. Relevant tax exemptions like the 54, 54EC exemption can be availed wherever applicable.

  • Income from other sources: Any interest income earned from investments such as fixed deposits and savings accounts held in Indian banks are taxable.

3. Tax deductions applicable for NRIs

The ‘NRI Taxation’ section under the Income Tax Act, 1961, clearly states that NRIs are also eligible for certain tax exemptions and deductions in India. Here’s a closer look at the same:

  • Deductions under Section 80C: An NRI can avail major tax deductions under Section 80C for any of the following expenditures:

    • Life insurance premium payments in their own, spouse’s or children’s name

    • Tuition fees paid for children to any educational institution in India

    • Principal repayments on loan for the purchase of a property in India

    • Payments for Unit Linked Insurance Plans (ULIPs) and Equity Linked Savings Scheme (ELSS) funds

  • Apart from these deductions under Section 80C, NRIs are also eligible for certain tax deductions under Sections 80D, 80E, 80G and 80TTA of the Income Tax Act, 1961.

Conclusion

The NRI taxation structure that applies to NRIs is slightly different from what applies to Indian citizens. Ultimately, it is vital to know the rules unless you want to end up paying double taxes. Besides, understanding the NRI taxation structure in India also enables you to receive the maximum tax benefits allowed each financial year.

 

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