Taxable Income of NRIs: Things to Know
June 07, 2015, If you have moved abroad recently, you may be worried about ensuring your tax compliance in India for financial year 2014-15. Whether an individual has to pay tax and file a return in India depends upon his/her residential status. Let's first understand how residential status is determined. You need to find out your residential status in financial year 2014-15. You are a non-resident Indian (NRI) if you have spent less than 60 days in India. If you are an Indian citizen leaving India for a job abroad or as crew on an Indian ship and you have spent less than 182 days in India, you will be considered non-resident. The time limit of 182 days is also allowed to persons of Indian origin (PIO) who come on a visit to India. Let's say you have spent more than 60 days but less than 182 days in India, in such a case if you have spent a total of 365 days in the past 4 years in India, you will be considered a resident.
There is also a third category - a resident but not ordinarily resident, also referred to as RNOR. The tax implications for RNORs and NRIs are largely similar. When an NRI earns an income from a source in India, such income is taxable in India. Income from a job where services are rendered in India is also taxable in India. So, though you may be an NRI, if you worked in India for a part of financial year 2014-15 and earned salary, this salary will be included in your taxable income in India. If you have rented out a property situated in India, you have to pay tax in India on the rent that it earns. There's a similar tax treatment for capital gains on sale of assets located in India. In short, you have to sum up all the incomes which either originate in India or are received here.
In case any of these incomes are also taxable in your country of residence, you can take the benefit of DTAA (Double Tax Avoidance Agreement). By seeking relief under DTAA, NRIs can avoid paying tax on the same income twice - once in the country of residence and once again in India. DTAAs between two countries either provide you an exemption from tax in one of the countries, or where it is taxable in both, you will be allowed to claim relief for tax paid in one of the countries.
The tax slabs applicable to NRIs are the same as residents. Rules have been laid down for TDS (tax deducted at source) on certain payments made to NRIs. Those paying rent to NRIs have to deduct TDS. Like residents, you can take credit of the TDS against your final tax due. Let's understand total taxable income of an NRI with an example. Arvind is an NRI and lives in the US. Salary is paid to him in dollars in the US. He has some money in a bank account in India and earns interest on it. He owns an apartment in Delhi and has given it on rent for Rs.35,000 per month. He gifts a car to his parents and transfers Rs.10,000 every month to their account to help with their household expenses. He also purchases an insurance policy of Rs 20,000 in India for his parents. His total income from rent is Rs 4,20,000. As per Section 24 of the Income Tax Act, a standard deduction of 30 per cent is allowed from income via house property.
So Arvind's income from this house is Rs 2,94,000. Add to this interest income from bank accounts of Rs 30,000. This brings Arvind's total income to Rs 3,24,000, which shall be taxed in India. He can claim a deduction of Rs 20,000 under Section 80C towards life insurance purchased for his parents. Therefore, total taxable income is Rs 3,04,000, on which income tax slabs shall be applied and tax paid accordingly. He will also have to file a return in India. Do note that the gift of car and the Rs 10,000 sent for his parents is not taxable for Arvind and also not taxable for his parents.