A country’s economy runs effectively through the taxes paid by the individuals residing in it. Any individual living in India is obligated to pay taxes in India. To know if you are supposed to pay Income tax in a country, determining your residential status is essential as the rules and benefits of taxation for NRIs are different from Indian citizens.
To be a resident of India, an individual should qualify for these conditions.
1. He has to reside in India for a minimum of 182 days a year.
2. He has resided in India for a minimum of 365 days in the immediately preceding four years. Also, he must live in India for a minimum of 60 days in the current financial year.
If the person doesn’t qualify for the above-said conditions, he is considered a Non-Resident of India (NRI).
In simple words, NRI is a person who has spent less than 182 days in India in a financial year.
A person isn’t considered a resident of India for FY 2019-20 if an individual has come to India on a visit before 22nd March 2020 and
a) hasn’t been able to leave because of the nationwide lockdown on or before 31st March 2020.
b) has been quarantined due to Covid19 on or after 1st March 2020 and departed on evacuation flight on or before 31st March 2020 or unable to leave India.
c) has been departed on an evacuation flight on or before 31st March 2020.
NOTE: a period of stay from 22nd March 2020 to the departure date shall not be considered.
Suppose you qualify as a Non-Resident of India (NRI). In that case, you have to pay taxes on your income earned in India as the tax exemption of INR 2.50 lakh isn’t applicable for NRIs. If you qualify as a resident of India (even if you’re not an Indian citizen), you are eligible for the tax deductions and standard tax exemption of INR 2.50 lakh.
If you wonder about the taxable income and tax deductions of NRI taxation, then worry not; I have got you all covered.
Taxable income of NRIs:
The income earned by NRIs in India is taxable in India.
• Salary: The income of an NRI earned through India’s salary is taxable in India, immaterial where you choose to receive it (either in India or the country you’re working in, for an Indian employer).
• House Property: House property of an NRI is taxed whether or not it is rented or not. Also, he can get a tax deduction if he has a home loan. The tenant, while paying the rent to the NRI owner, has to deduct TDS.
• Interest earned: Interest earned from other sources in India such as savings account, fixed deposits, capital gains, investment returns, interest earned on the tax deduction, etc., is taxable income.
Tax deductions for NRIs
NRIs are eligible for certain tax deductions under section 80c, and they are:
• Life insurance premium: the insurance has to be in the name of the NRI or their spouse or on their child’s name.
• Children’s tuition fees aid in India: fees paid on any two children of the NRI on full-time education in any school, college, or university.
• Principal repayment of housing loan: tax deduction is allowed on the compensation of loan taken for buying/construction of housing property. A tax deduction is also available on the registration fees and anything else required to transfer the property to the NRI.
• Unit Linked Insurance Plans (ULIPS): ULIPS comes under life insurance cover, which comes under deductions of section 80c.
• Investment in ELSS: this option has been the most preferred option of tax deduction as it allows a deduction of up to 1.5 lakhs and provides the benefits of EEE (Exempt-Exempt-Exempt) to the taxpayers.
IMPORTANT: Opt for Form 16 while e-filing Income Tax for NRIs.