How are NRIs taxed on their income earned in India?

For tax purposes, you are considered an Indian resident if you a) spent at least six months (182 days) in India during the fiscal year, b) spent at least 60 days in India the previous year, or c) spent a full year (365 days) in India in the previous four years.

If you earn or accrue income in India, it is taxable in India. If you are a resident, however, your foreign income is taxable in India.

  • Income earned or accrued in India can take many forms, including salary received in India or salary for services rendered in India.

  • Income from a house/real estate property.

  • Gains on the sale of an asset in India.

  • Fixed deposit income and savings bank account interest

  • Some of the various types of income are discussed in greater detail.

Income From Housing:

  • Even if you are an NRI, income from your home in India is taxable. This income is calculated in the same way that a resident's income is.

  • As an NRI, you can claim a standard tax deduction of 30% and tax benefits for home loan interest paid, if applicable, from the property's deemed rent. Section 80C of the Income Tax Act allows you to deduct principal repayment, stamp duty, and registration fees.

  • Home-based earnings are taxed at slab rates based on total earnings.

Income From Capital Gain

  • Any gain on the sale of a domestic capital asset is taxable. Capital gains from the sale of stocks and securities are also taxable.

  • If you sell a house and make a long-term capital gain, the buyer will deduct tax deduction at source (TDS) at 20% and deposit it with the government. However, you can claim capital gains exemption by reinvesting the amount in real estate or capital gain bonds.

Special Provision For Long-term Capital Gain

If you make long-term capital gains from the sale of foreign assets, you must pay tax in India. Foreign assets, unlike Indian assets, do not benefit from indexation. Section 80 also does not allow for any deductions.

If you want to claim a profit exemption, you can do so under Section 115F by reinvesting the profit in:

  • Shares in an Indian corporation

  • Debentures issued by a public company in India

  • Deposits in Indian banks and public companies

  • Central government bonds

  • NSC VI and VII concerns

Remember that if the new asset is sold within three years, the exempt profit will be added to the income in the year of sale.

Deductions And Exemptions

The majority of Section 80 deductions are also available to NRIs. Section 80C allows a maximum tax deduction of Rs 1.5 lakh for 2017-18.

The following are the various tax breaks available to NRIs:

  • Payment of life insurance premiums: If a life insurance policy is purchased in the name of an NRI or for their spouse or children, a tax deduction is available. The premium cannot exceed 10% of the sum assured.

  • Tuition fees for children: Tuition fees paid to any school, college, university, or other educational institution in India for the full-time education of any two children (including payments for play school, pre-nursery and nursery).

  • Loan principal repayments for the purchase of a home: The repayment of a loan used to purchase or construct a residential property in India can be deducted from taxable income.

  • Section 80D: NRIs can claim a tax deduction for paying health insurance premiums. This deduction is available for senior citizens up to Rs 50,000 (effective 1 April 2018) and for insurance premiums for self, spouse, and dependent children up to Rs 25,000. Furthermore, an NRI can claim a tax deduction for paying insurance premiums for their parents (father or mother or both) up to Rs 50,000 if their parents are senior citizens, and Rs 25,000 if they are not senior citizens.

  • Section 80E: Non-resident Indians (NRIs) can deduct the interest component of an education loan. This loan may be used for the NRI's own higher education, the education of the NRI's spouse or children, or the education of a student for whom the NRI is the legal guardian. The amount of deduction allowed under this section is unlimited. It is valid for up to eight years or until the interest is paid, whichever comes first. Section 80G allows NRIs to claim a tax deduction for charitable contributions.

  • Section 80TTA: NRIs can claim a deduction of up to Rs 10,000 on income earned from savings bank account interest. This is permitted for savings account deposits (not time deposits) with a bank, co-operative society, or post office.