Income Tax Rules for Non-Residential Indians (NRIs)

Do Indian Citizens Have To Pay Taxes On Foreign Income?

• The Government of India recently clarified that NRIs' new provisions do not require Indians living abroad to pay tax in India.
• The new regulations gave rise to several questions in the minds of Indians working abroad, especially those living in the Gulf countries.
• According to the New Financial Bill 2020, an Indian Citizen will be considered an Indian Resident if he is not liable to pay tax to any other country or jurisdiction.
• Specific changes were proposed in the current Financial Bill.
• However, it ensured that Indians would not be taxed for overseas income.
• If the revenue comes from an Indian company or business, then only it will be taxed.

How do NRIs contribute to the Indian Economy?

1. Although NRIs contribute to 1% of the massive 1.3 billion Indian population, they play an enormous role in the Indian Economy.
2. Money transfers or remittances made by the NRIs to their families in India contribute to its GDP growth.
3. According to a report by the World Bank, the estimation of remittances in India in 2018 was $79 billion, which was the highest in the world.
4. This contributed to 2.9% of the country's GDP.
5. The contribution of NRIs to the Indian Economy is enormous.
6. Remittances increase the foreign cash pool in the country and increase the purchasing power of the people.
7. In this way, the consumption market will grow, and the demand and supply ratio will move forward.
8. Apart from these, many NRIs are investing in various activities in India.
9. This is mostly in the market development sector, such as tourism, technology, outsourcing, etc.

How is the residential status of a citizen determined in the current Financial Bill?

• It is essential to determine the residential status of a citizen before taxation.
• According to the old bill, a citizen is an NRI if:

1. The period of stay is more than 183 days or more than six months outside India.
2. According to the new amendment, it has now been changed to 245 days.

• A Citizen will be considered as a resident of India if:

1. Whose stay in India is at least six months or 182 days in India during the current financial year.
2. Whose period of stay in India was for two months, i.e., 60 days in the year and one whole year or 365 days in the last four years.

• Only the first condition applies to people who are members of the crew on Indian ships.
• This condition is also applicable to Indian Origin or PIO people who are on a visit to India.

What is PIO?

1. A person is recognised as a PIO if their parents or grandparents were born in India (undivided).
2. If none of the above conditions are met, then a person is categorised as NRI.
3. Considering the financial year 2019-2020, a person might visit India on or before March 22nd, 2020, and has been unable to return because of lockdown.
4. The period of stay between March 22nd to March 31st, 2020, will not be considered.
5. The stay period will not be considered if an individual has been quarantined because of COVID-19 and has not been able to leave before March 31st, 2020.
6. The stay period will not be considered if an individual has left before March 31st, 2020, on an evacuation flight.
7. These were mentioned during the announcement of the current Financial Bill.

Know Whether the Income Earned Abroad is Taxable or Not

• This depends on an individual's residential status in the current financial year.
• The income will be taxable if the current status is 'resident.'
• Even if the status of an individual in India is 'NRI,' any income that is earned in India will come under taxation.
• Other examples of taxable income are any salary earned in India, a salary provided for India's services, earnings from properties in India, interest earned from SB accounts of fixed deposits in India, transferring assets or capital gains in India, etc.
• All these sources of earnings are taxable for NRI citizens.
• However, any income earned overseas does not come under taxation in India.
• It should be noted that interests made from FCNR or NRE accounts are not taxable, but interests from NRO accounts come under the tax in India.

When should you file an Income Tax return in India?

1. If an individual's yearly income exceeds Rs. 2,50,000, they are required to file an Income-tax return in India.
2. It does not matter whether the person is NRI or not.
3. If the income is being earned from India, it is taxable.
4. NRIs should file for Income Tax returns whenever they want to claim any refund or when they want to carry forward a loss.

Deadline for Filing an Income Tax Return

The deadline for filing an Income-tax return for NRIs in India is July 31st.

What is Advance Tax?

• No provision exists as of now that requires NRIs to pay advance taxes.
• However, advance tax is only applicable if an individual's tax liability for a financial year exceeds Rs. 10,000 or more.
• However, after TDS or TCS reduction, if the payable amount goes below Rs.10,000, an individual is exempted from paying advance tax.

In case an individual has to pay advance tax, it has to be paid in four installments:

1. 15% of the total tax amount has to be paid on or before June 15th.
2. 45% of the tax amount has to be paid on or before September 15th.
3. 75% of the tax amount has to be paid on or before December 15th.
4. One thousand five of the tax amount has to be paid on or before March 15th.

• According to Section 234B and 234C, interest applies to anyone who does not deposit advance tax on time.
• Any resident who is a senior citizen (age 60 years or more) who does not have any income source from any profession or business is not required to pay any advance tax.

What is the taxable income for NRIs?

1. Any income accrued from India is taxable.
2. The different forms of taxable income for NRIs are:

Income from Salary

• It should be noted that the salary earned by an NRI for services that are provided by them in India is taxable.
• It will come under taxation in India even if the employer is from overseas.
• Another thing that should be considered is that even if an individual is a resident of India, working under India's government.
• Still, the services are provided outside the country; then also it is taxable.

Rental Payments

1. If an NRI individual receives payments from a tenant in India, it also comes under taxation.
2. The tenant needs to deduct 30% of TDS from the payable amount before paying their landlord.
3. Form 15CA should be filled up and submitted by the tenant online to the Income Tax Department.

Income from Businesses

• Any income earned by NRIs from the business setups that provide India's services is taxable.

Income from Bank Accounts

1. Fixed deposits and saving bank accounts in Indian Bank accounts provide interests.
2. This also counts as taxable income. However, interests earned from FCNR and NRE are tax-exempted.

Also Read:

Read Why We Pay Income Tax in India? Importance, Applicability & more

ITR: Different Slabs, Exemptions, Eligibility & more.

How does the Income Tax System work in India?

FAQs for Income-Tax Filing

Q- When should an NRI file for an Income Tax return in India?

1. Like any other tax paying citizen of India, an NRI also has to file for an income tax return if their income exceeds the sum of Rs. 2.5 lakhs in the given financial year.
2. The deadline for filing an income tax return is July 31st of the financial year under concern.

Q- Consider an NRI who is receiving rental payments from a tenant in India. He is working in the US and receiving a salary in dollars. Does he have to file for an Income Tax Return?

• Any income that is earned from India is taxable.
• It is important to note that only the rental payment, in this case, comes under taxation.
• However, the rest of the income that is provided by the US does not come under the tax in India.

Q- When should NRIs have to pay advance tax?

1. NRIs only have to pay advance taxes when their tax liability for a financial year exceeds Rs' sum. 10,000.
2. The advance tax is not required otherwise.
3. This amount can be deposited in four instalments.
4. Any default in the deposit will be subjected to interest under Section 234B and Section 234C.

Q- Do senior citizens have to pay taxes?

• Rs. 3 lakhs and Rs. 5 lakhs are provided as necessary exemptions to the senior citizens whose status are ', resident.'
• Even if an individual is an NRI senior citizen and has an income exceeding Rs. 2.5 lakhs in India, he or she is liable to file for Income-Tax returns.
• NRIs have to file for taxes even if their total income in the financial year under consideration includes only long-term capital income or income from investments.
• They can file their taxes online to the Income Tax Department of India.
• NRIs can also file for tax exemptions mentioned under Section 80C.
• Besides, they can also consult with tax advisers to avail exemptions or to prevent double taxation.