Taxation in India is crucial to the economy of the nation. Taxes are levied on services and products being availed by the citizens of India in different ways. Taxes are meant to improve the services and products that are used by consumers. Income tax, service tax, property tax and tax deducted at source are some of the commonly known forms of taxation and will be familiar terms for most of the people residing in India. For non-resident Indians though, the only aspect of tax that needs to be borne in mind is income tax.
Non-resident Indians need to pay appropriate taxes as and when they fall under the jurisdiction of the Income Tax Act of 1961. The details of what the taxes for an NRI are and how they should be dealt with, fall under the category of NRI taxation. NRI taxation covers aspects of income tax, wealth tax and property tax, among others but the focal point of taxation lies on income tax.
Income Tax Provisions for NRIs:
Based upon a set of specific guidelines and directives, it can be ascertained if a person is actually an NRI. Based upon that, income earned in India can be considered as taxable income. It is important to understand that the income earned by an NRI outside India will not fall under the jurisdiction of the Income Tax Act. However, if his/her income in India through aspects like capital gains from investments in shares, mutual funds, property rental and term deposits exceed the basic exemption limit as defined in the Income Tax Act, he/she would have to file a tax return.
Income tax for non-resident Indians differs from the income tax charged for resident Indians, that difference lies in the taxation slabs.
The major points concerning NRI taxation can be outlined as follows:
- Income tax slabs for NRIs are based only on the income barring any gender, age or other specification
- In case of TDS, all incomes of NRIs are charged irrespective of any threshold value
- No nominal deductions are applicable on investment income except under specific situations
- Tax filing isn’t normally required for NRIs if the income is subject to clauses under Section 115G of the Income Tax Act
Some specific provisions exist as per the Income Tax Act which relate how income tax would be charged for an NRI.
The brief of such provisions are mentioned below:
- Section 115D: Computation of Tax
- Section 115E: Tax on income from investment and long term capital gains
- Section 115F: Non chargeable capital gains on transfer of foreign exchange assets in certain cases – Dealing with exceptions where the transfer of a foreign exchange asset will not incur any tax
- Section 115G: Non-filing of returns of income in specific cases
- Section 115H: Benefits of taxation after an NRI becomes a resident
- Section 115I: Non-application of provisions for NRI taxation
All the above rules are subject to change as per the discretion and direction of the Central Government and the Income Tax Department of India.
Applicable Deductions and Exemptions for NRIs:
Most of the income of NRIs gets subjected to a heavy TDS (Tax Deducted at Source) and that often leads to NRIs paying more tax than they are normally liable for. Thus, knowing the applicable deductions and exemptions that can be availed is important.
The deductions that are allowed for an NRI are as follows:
- Section 80C:
- Life insurance premium payment
- Tuition fee payment
- Principal payment on loan for purchase of house property
- Investment in ULIPs
- Deduction from House Property Income
- Premiums of health insurance of the immediate family and dependents
- Up to a maximum of INR 5000 for preventive health check-ups
Income Tax Rates for 2015-16 for NRIs:
The income tax slabs and rates for the Financial Year of 2015-16 haven’t changed from the previous financial year of 2014-15. Taxation for NRIs is applicable based only on tax slabs provided by the Income Tax Department. Difference in rates as per gender and age is not applicable for NRIs.
For the Financial Year of 2015-16, the tax slabs and rates are as follows:
|Taxable Income||Tax Rate|
|Up to INR 250,000||N/A|
|INR 250,000 to INR 500,000||10%|
|INR 500,000 to INR 10,00,000||20%|
|Exceeding INR 10,00,000||30%|
- In case the income of an individual is more than INR 1 crore, income tax chargeable will be increased by a surcharge of 10% on the same tax. There is a relief available on the surcharge considering that the sum total of income tax and surcharge will not exceed income tax on INR 1 crore by more than the income amount over INR 1 crore.
- Education cess will be applicable as per the rates set by the Income Tax Department and as of 2015-16 it is 2% of tax for primary education and 1% of tax for higher secondary education.