Many NRIs are unaware of the income tax laws in India and do not know whether or not to file income tax returns in India. Sometimes they also ask themselves, if they also have to include income earned in the USA or only income received in India would be taxed. Other doubts that come to mind are whether interest earned on NRE, NRO and FCNR deposits are counted as taxable income or not. What about long-term capital gains?
Many others are also asked about the tax implication because of the remittance, e.g. Whether they need to pay taxes when they send money to India from abroad. Although there is so much to learn about the income tax in India, even for NRIs, I will share some of the useful points that I believe any NRI should know.
10 basic points NRIs should know about Income tax
Here are some of the helpful points related to income tax all NRIs should be aware of while filing income tax returns.
1) It is not compulsory for an NRI to submit income tax in India. Especially if all revenue is generated from the fixed deposit or other assets, where TDS is already deducted.
2) NRIs should only submit the income tax if their India income, i.e. for example in India interest income earned from fixed deposits, rental income, dividend and others surpass the basic freedoms of 2.5 lakh.
3) When calculating the taxable income, interest earned on NRE and FCNR deposits is not counted. For example, even if you have earned 5 Lakhs as interest in NRE fixed deposit, your taxable income for this financial year is zero, provided you have no other income in India.
4) Likewise, income from long-term capital gains is not included in taxable income as part of the stock or mutual funds selling.
5) Although interest earned on NRO fixed deposit is counted on income and you have to pay taxes that. By default, TDS is deducted from profit earned on NRO deposits at the rate of 30.9%.
6) The only way to demand the refund of the money deducted in TDS is by filing income tax. For instance, if you earn 1 Lakh Rs as an interest in FY 2016-17 on NRO fixed deposit, 30,900 are deducted as TDS. Suppose you have no other income in India and in this case 1 lakh is still less than a basic exemption limit of 2.5 lakh, so you do not have to pay any taxes. You can apply for a refund of 30,900 by filing income tax returns. This can be done online and you should do it to get your money back.
7) Rental income cannot be deposited in the NRE account because the NRE account does not accept INR, you must start NRO account to accept rental income.
8) If you are paying money from overseas to India to your close relatives e.g. wife, parents and children who are considered a gift and they are not subject to income tax. Although the profit earned by this amount is considered income and is taxable. For example, if you transfer 5 lakh INR that your wife has invested in bank FD @ 8% per year and which result in 40K INR as interest, then that would be assigned to her other income and taxable.
9) Only Indian income is subject to the tax in India for NRIs and PIOs and must be specified in ITR. The foreign or global benefits of an NRI or a PIO is not taxed in India. That is where Indian laws are different with the US, where the global income of US citizens is taxed in states.
10) When an NRI returns to India, he can still be RNOR for a couple of years depending on how long he has spent outside India in the past 10 years and can enjoy the same tax relief enjoyed by NRI, which were fixed on NRE fixed deposit, FCNR fixed deposit and foreign revenue is not taxed in India.
This is all about some important points about income tax in India every NRI should know. If you are someone who has just travelled abroad, then you do not have to worry about these just now, but you will find it useful next year when you have to submit your income tax return in India.
When do NRIs need to pay NRIs Income tax in India?
One of the most common doubts among any new NRIs mind is whether they need to make income tax returns in India or not. As I said earlier, it is not necessary to file the income tax return in India, but now questions arise when NRIs have to file the income tax return in India? When it is compulsory for NRI to file the income tax return in India. I will try to answer these questions in this article. First, an NRI must pay taxes or any income earned in India. Similarly, to resident taxpayers, the basic tax exemption for NRIs is also 2.50,000 for the year 2015-16.
It means that an NRI must file income tax returns if its total income generated or collected in India is more than 2.5 Lakh (before deduction, e.g. investment made under Section 80C). So, if any NRIs income earned from rents, capital gains and interest on NRO fixed deposits are more than 2.5 lakh, as he needs to file income tax in India.
Apart from the fact that NRI should also make income tax return in the following cases:
- If he wishes to receive a tax refund for TDS deducted on NRO fixed deposits
- If NRI has short-term or long-term capital gains from investments or assets, even if profits are less than 2.5 Lakh INR
- If NRI wants to carry forward losses, they can be adjusted later.
There is also a special case for NRIs to which he does not have to file an income tax if income from short-term or long-term capital gains is the only income and TDS has been deducted from it. So if you are only earning the profit on fixed deposits and you are satisfied with the TDS subtracted, you are exempted from filing income tax in India.
Is the foreign income of NRI taxable in India?
If you know the tax liability depends on your status in a given fiscal year, you could still be a citizen of the year you are going abroad and in that case, your global income will be taxed in India. For NRIs, the global income is not taxable, but any income generated in India is taxed in India.
Are interest earned on NRE and FCNR fixed deposit is taxable in India?
No, interest earned on NRE fixed deposit is tax-free in India, so the interest is earned on FCNR time deposits. As much as I understand, they are also not part of your taxable earnings in India, e.g. You could make 5 Lakhs INR in NRE fixed deposit, but you do not need to submit income tax return. This is the reason why no TDS is deducted on NRE fixed deposit regardless of how much interest you earn.