In today’s global environment, many NRI families have one earning member residing abroad who regularly sends funds to support relatives in India or makes financial investments for their family’s future. This often creates confusion regarding the applicability of income tax for Non-Resident Indians (NRIs) in India.
As per the provisions of the Income Tax Act, 1961, income earned outside India by an NRI is generally not taxable in India. However, income that is received, accrued, or arises in India is subject to taxation. During each financial year, taxpayers—including NRIs—look for lawful ways to minimize their tax liability.
NRIs commonly maintain NRE or FCNR accounts, and interest earned on NRE accounts is tax-free in India. However, interest earned on NRO accounts is taxable. Investment income, rental income, dividends, and capital gains arising in India are also taxable. If total taxable income exceeds ₹2.5 lakh in a financial year, filing an income tax return becomes mandatory.
NRIs are restricted from investing in certain schemes like NSC, Senior Citizen Savings Schemes, or opening new PPF accounts. However, they can invest in home loans, life insurance, mutual funds, and claim deductions under sections such as 80C and 80D, subject to prescribed conditions.
The tax liability of an NRI depends entirely on the individual’s residential status for the relevant financial year under the Income Tax Act, 1961. If a person qualifies as a Resident, their global income—whether earned in India or abroad—is taxable in India. However, if the individual qualifies as a Non-Resident Indian (NRI), only the income that is earned or accrued in India is subject to tax in India.
Income considered as earned in India includes salary received for services rendered in India, capital gains arising from the transfer of assets located in India, rental income from property situated in India, and interest earned on fixed deposits or savings accounts maintained in India. Such earnings are taxable for NRIs.
On the other hand, income earned outside India is not taxable in India for an NRI. Interest earned on NRE and FCNR accounts is exempt from tax, whereas interest earned on NRO accounts is taxable as per applicable provisions.
According to the provisions of the Income Tax Act, 1961, Non-Resident Indians (NRIs) are required to pay tax in India on income that is taxable under Indian law. However, the tax rates and slab structure applicable to NRIs differ in certain respects from those applicable to resident individuals. The taxation for NRIs is primarily determined based on the nature and amount of income earned in India.
Taxation plays a crucial role in strengthening the country’s economy. The government collects taxes on income, property, goods, and services to fund public infrastructure, welfare schemes, and development projects. While there are several types of taxes in India—such as income tax, property tax, and tax deducted at source (TDS)—NRIs are mainly concerned with income tax on earnings arising in India.
The Income Tax Act, 1961 clearly outlines the scope of NRI taxation, specifying which incomes are taxable and the applicable rates. Although it covers various forms of taxes, the primary focus for NRIs remains income tax compliance and related provisions.
An individual is treated as a Non-Resident Indian (NRI) only after satisfying the conditions prescribed under the Income Tax Act, 1961. Income earned outside India by an NRI is generally not taxable in India. However, if the person earns income within India—such as capital gains from investments, mutual funds, or sale of assets—and the total taxable income exceeds the basic exemption limit, filing an income tax return becomes mandatory.
The method of taxation for NRIs differs from that of resident individuals, particularly in terms of applicable tax slabs and eligibility for certain deductions.
Tax slabs for NRIs are determined solely on the basis of income and are not influenced by age or gender.
Tax Deducted at Source (TDS) may apply to certain incomes of NRIs, often without considering the basic exemption threshold.
Limited deductions are available against investment income, except in specific permitted cases.
Under certain circumstances covered by Section 115G, an NRI may not be required to file an income tax return.
Section 115D – Deals with the computation of taxable income for NRIs.
Section 115E – Specifies a 20% tax rate on investment income or long-term capital gains of NRIs.
Section 115F – Provides exemption on capital gains arising from transfer of foreign exchange assets in specified situations.
Section 115G – Grants exemption from filing returns in certain cases.
Section 115H – Offers tax benefits when an NRI becomes a resident.
Section 115I – Relates to income derived from foreign exchange assets.
These provisions may be amended from time to time based on notifications issued by the Central Government and the Income Tax Department.
Many NRIs end up paying higher taxes mainly because their income in India is often subject to substantial TDS (Tax Deducted at Source). To avoid excess tax payments, it is essential for NRIs to understand the deductions and exemptions permitted under the Income Tax Act, 1961.
The following deductions are commonly available to NRIs:
NRIs can claim deductions for:
Payment of life insurance premiums
Tuition fees paid for children
Repayment of principal amount on a home loan
Investments in ULIPs
Certain deductions related to income from house property
Health insurance premiums paid for self, spouse, children, or dependent parents
Deduction up to ₹50,000 if parents are senior citizens and ₹25,000 if they are not
Preventive health check-ups up to ₹5,000
Interest paid on an education loan for higher studies (self, spouse, children, or dependent) is deductible for up to 8 years or until the interest is fully repaid.
Donations made to approved charitable institutions qualify for deduction.
Interest earned on savings bank accounts up to ₹10,000 is eligible for deduction (subject to applicability).
The following are the income tax slab rates applicable for Financial Year 2023-24 under the New Tax Regime for individual taxpayers, including NRIs (as per the Income Tax Act, 1961**):
| Annual Income | Tax Rate |
|---|---|
| Up to ₹2.5 lakh | Nil |
| ₹2.5 lakh – ₹5 lakh | 5% |
| ₹5 lakh – ₹7.5 lakh | 10% |
| ₹7.5 lakh – ₹10 lakh | 15% |
| ₹10 lakh – ₹12.5 lakh | 20% |
| ₹12.5 lakh – ₹15 lakh | 25% |
| Above ₹15 lakh | 30% |
Note: The new tax regime is optional. Taxpayers may choose between the old and new regimes based on what is more beneficial to them.
The above details provide a basic overview of NRI income tax slabs. For a comprehensive understanding of NRI taxation, professional guidance is recommended. Expert assistance from qualified CA and CS professionals ensures compliance with the latest amendments and smooth handling of tax matters without complications.
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