1. Types of Income Taxable for NRIs
NRIs are liable to pay tax in India on income that is earned or accrued in the country. Here are the main categories of taxable income for NRIs:
- Income from Salary: Taxable if services are rendered in India.
- Income from House Property: Rental income from properties located in India.
- Income from Other Sources: Interest from certain Indian bank accounts.
- Income from Business and Profession: Earnings from a business controlled or set up in India.
- Income from Capital Gains: Profits from selling assets situated in India, like property or shares.
Let’s dive into the specifics of each category.
2. Taxation on Salary Earned in India vs. Abroad
Salary taxation for NRIs hinges on where the services are performed, not where the payment is received.
- Salary Earned in India: If an NRI works in India, their salary is taxable, regardless of whether it’s credited to an Indian or foreign bank account. For instance, an NRI on a temporary assignment in India would owe tax on that income.
- Salary Earned Abroad: Income from services rendered outside India is typically not taxable for NRIs. However, an exception applies to Government of India employees (e.g., embassy staff) working abroad—their salary remains taxable in India. Diplomats and ambassadors, on the other hand, enjoy tax exemptions.
Understanding this distinction ensures NRIs plan their tax obligations accurately, especially during cross-border assignments.
3. Tax on Rental Income from Property in India
Owning property in India can be lucrative for NRIs, but rental income comes with tax implications.
- Taxability: Rental income from a property in India is taxable, even if the rent is deposited into a foreign account. The tax is calculated similarly to residents—based on the property’s annual value, minus municipal taxes and a 30% standard deduction.
- TDS Requirements: Tenants must deduct 30% TDS (Tax Deducted at Source) under Section 195 before paying the rent. For example, if Priya, an NRI in Singapore, earns rent from her Mumbai flat, the tenant deducts TDS and remits the balance.
- Compliance: Tenants file Form 15CA online with the Income Tax Department. If the annual remittance exceeds Rs 5,00,000, a Form 15CB certificate from a chartered accountant is also required, verifying TDS and Double Taxation Avoidance Agreement (DTAA) benefits. For smaller amounts or lower TDS rates (via Section 197), Form 15CB isn’t needed.
NRIs can reduce their tax burden by claiming DTAA benefits if India has a tax treaty with their country of residence.
4. Capital Gains Tax on Sale of Property, Shares & Other Assets
Capital gains from assets in India—whether property, shares, or securities—are taxable for NRIs, with rates varying by asset type and holding period.
- Property:
- Long-Term Capital Gains (LTCG): For properties held over 24 months, LTCG is taxed, and buyers deduct 20% TDS. NRIs can reinvest gains in another house (Section 54) or capital gain bonds (Section 54EC) to claim exemptions.
- Short-Term Capital Gains (STCG): For properties sold within 24 months, STCG is taxed at the NRI’s slab rate, with 30% TDS deducted.
- Shares & Securities:
- LTCG on listed equity shares (held over 12 months) is taxed at 10% above Rs 1 lakh, while STCG (less than 12 months) is taxed at 15%, subject to Securities Transaction Tax (STT).
- For unlisted shares, LTCG is taxed at 20% with indexation, and STCG follows slab rates.
- Other Assets: Gains from mutual funds or debentures depend on holding periods, with LTCG taxed at 10%-20% and STCG at slab rates.
Proper planning, like leveraging exemptions, can optimize tax liability for NRIs selling Indian assets.
5. Taxation on Interest Earned (NRE, NRO, FCNR Accounts)
Interest income taxation for NRIs varies by the type of bank account.
- NRE (Non-Resident External) Accounts: Interest on NRE accounts is fully exempt from tax in India. These accounts, ideal for income earned abroad, also allow repatriation of funds.
- NRO (Non-Resident Ordinary) Accounts: Interest on NRO accounts, which hold India-sourced income like rent, is taxable. TDS is deducted at 30%, though DTAA relief may apply.
- FCNR (Foreign Currency Non-Resident) Accounts: Interest on FCNR accounts, maintained in foreign currency, is tax-exempt, making them a popular choice for NRIs.
For regular savings or fixed deposits in Indian banks (outside NRE/FCNR), interest is taxable, adding to an NRI’s tax obligations.
NRI Taxation Services in India
Understanding taxes as an NRI (Non-Resident Indian) can be confusing, but the right guidance makes it simple. Whether you need help with income tax filing, double taxation relief, property tax, or investment taxation, expert NRI taxation services ensure compliance with Indian tax laws while optimizing your tax benefits. From understanding residential status rules to claiming deductions and avoiding unnecessary tax liabilities, these services help NRIs manage their finances efficiently without stress.
Conclusion
Navigating NRI Taxation requires understanding the source of income and applicable rules. From salary and rental income to capital gains and interest, each category has unique tax treatments and compliance needs. By leveraging exemptions, DTAA benefits, and proper account choices (like NRE or FCNR), NRIs can optimize their tax planning. Stay informed, consult a tax professional, and ensure timely compliance to make the most of your financial journey as an NRI.
