Understanding your income tax obligations and exemptions in India is crucial for you as an NRI to optimize your tax liabilities and make informed financial decisions. This helps in the timely filing of income tax returns, maintaining appropriate tax residency status, knowing tax implications on various investments, and leveraging the benefits of the Double Taxation Avoidance Agreement (DTAA) between both countries. If you are a UAE-based NRI, understanding the NRI tax regulations in India can help you avoid any legal or compliance issues and optimize your savings.
Current NRI Tax Regulations in India
Tax Residency Status
As per NRI tax residency rules in India, you are considered an NRI if you satisfy both of the following conditions:
1. You should be in India for a period not more than 182 days during the previous year,
and,
2. You should be in India for a period of not more than 60 days during the previous year and not more than 365 days during the 4 years immediately preceding the previous year.
Additionally, if you visit India during the year, the period of 60 days as mentioned in (2) above shall be substituted with 182 days. Similar concession is provided if you leave India in any previous year as a crew member or for the purpose of employment outside India.
Taxable Income in India
Income earned by NRIs in the UAE is not taxable in India. However, all income earned and accrued in India is subject to NRI income tax in India. This includes:
- Salary received in India – is fully taxable
- Rental income earned from residential property in India – is fully taxable as income in India
- Interest on NRO (Non-Resident Ordinary) savings and deposit (FD) accounts – is fully taxable
- Capital gains from selling assets (such as property, company shares, Mutual Fund units and other securities) in India – both short-term and long-term capital gains are liable to be taxed as per prevailing NRI capital gains tax regulations in India.
- Any other income earned or accrued in India, such as professional fees, business income, and income from other sources – is fully taxable.
- Gifts exceeding INR 50,000 received from non-relatives in a year are taxable.
Please note that if you conduct business in India as an NRI, you would also be responsible for collection and payment of GST (Goods and Services Tax) as per applicable GST practices for your industry. According to NRI GST regulations in India, you would need to apply for a GST registration number and file regular GST returns for your business.
As per NRI tax filing requirements in India, if your gross annual income (income before deductions and exemptions) in India crosses INR 2.5 Lakhs in a financial year, you must file an income tax return with the Indian Income Tax Department. Even if your income does not cross this threshold, you would need to file a return in order to claim a refund for any TDS that was deducted on your Indian income in the corresponding financial year.
Basic Exemption Limit
NRIs are subject to the same tax rates as resident Indians. NRIs can opt for the Old Tax Regime, which allows for several exemptions and deductions, or the New Tax Regime, which has lower tax rates but no exemptions or deductions. Here are the basic exemption limits.
Old regime | New regime | ||
Tax slab | Rate | Tax slab | Rate |
Up to INR 2.5 lakhs | Nil | Up to INR 3 lakhs | Nil |
INR 2.5 lakhs to INR 5 lakhs | 5% | INR 3 lakhs to INR 7 lakhs | 5% |
INR 5 lakhs to INR 10 lakhs | 20% | INR 7 lakhs to INR 10 lakhs | 10% |
Above INR 10 lakhs | 30% | INR 10 lakhs to INR 12 lakhs | 15% |
INR 12 lakhs to INR 15 lakhs | 20% | ||
Above INR 15 lakhs | 30% | ||
Note: Income surcharges and health and education cess additional as applicable.
NRI Tax Deductions and Exemptions in India
The following are some of the key deductions NRIs can claim if they choose the old tax regime:
Section | Deductions |
80C | LIC/other life insurance premium, Equity Linked Savings Scheme, Unit Linked Insurance Plans, Housing Loan Principal (combined limit of up to INR 1,50,000) |
80D | Health insurance premiums and preventive health check-ups |
80E | Education loan interest payments |
80G | Donations made to the Prime Minister’s National Relief Fund, charitable institutions, etc. |
The following are the NRI tax exemptions in India:
- Interest on NRE and FCNR accounts
- Long-term capital gains from the transfer of foreign exchange assets are tax-exempt if the total gains are reinvested in specified assets within 6 months (Section 115F)
- Long-term capital gains from the sale of residential property are tax-exempt if the gains are reinvested in another residential property within 2 years after the sale of the initial property (Section 54 and 54EC)
Tips for NRIs to Manage Taxes Efficiently
- Leverage India-UAE’s Double Taxation Avoidance Agreements (DTAA) to avoid being taxed twice on the same income. You can claim NRI tax credits in India as applicable.
- Invest in FCNR/NRE accounts to enjoy tax-free interest income. As per NRI income repatriation rules in India, NRIs can freely repatriate funds from India to UAE from FCNR/NRE accounts.
- Seek professional advice from NRI tax advisory services in India to optimize tax liabilities.
Conclusion
Understanding the intricacies of NRI tax regulations in India involves knowing what income is taxable, the available exemptions and deductions, and compliance with tax filing requirements. Leveraging DTAA benefits and expert advice can help NRIs manage their tax liabilities efficiently.
