Taxable Income of an NRI
Section II: Taxable Income of an NRI
Income from salary
Your salary income is taxable when you receive your salary in India or someone does on your behalf. Therefore, if you are an NRI and you receive your salary directly to an Indian account it will be subject to Indian tax laws. This income is taxed at the slab rate you belong to.
Income from Salary will be considered to arise in India if your services are rendered in India. So even though you may be an NRI, but if your salary is paid towards services provided by you in India, it shall be taxed in India.
In case your employer is Government of India and you are the citizen of India, Income from salary if your service is rendered outside India is also taxed in India. Note that income of Diplomats, Ambassadors is exempt from tax.
Income from House Property
Income from a property which is situated in India is taxable for an NRI. The calculation of such income shall be in the same manner as for a resident. This property may be rented out or lying vacant.
An NRI is allowed to claim standard deduction of 30%, deduct property taxes and take benefit of a interest deduction if there is a home loan. The NRI is also allowed deduction for principal repayment under section 80C. Stamp duty and registration charges paid on purchase of a property can also be claimed under section 80C. Income from House Property is taxed at slab rates applicable.
Rental payments to an NRI
A tenant who pays rent to an NRI owner must remember to deduct TDS at 30%. The income can be received to an account in India or the NRI’s account in the country he is currently residing.
What are the investments that qualify for special treatment?
Income derived from the following Indian assets acquired in foreign currency:
- Shares in a public or private Indian company
- Debentures issued by a publicly-listed Indian company (not private)
- Deposits with banks and public companies
- Any security of the Central Government
- Other assets of the Central Government as specified for this purpose in the official gazette.
No deduction under Section 80 is allowed while calculating investment income.
Special provision related to long-term capital gains
For long-term capital gains made from the sale of transfer of these foreign assets, there is no benefit of indexation and no deductions allowed under Section 80. But you can avail an exemption on the profit under Section 115 F when the profit is reinvested back into:
- Shares in an Indian company
- Debentures of an Indian public company
- Deposits with banks and Indian public companies
- Central Government securities
- NSC VI and VII issues
In this case, capital gains are exempt proportionately if cost of new asset is less than net consideration. Remember, if the new asset purchased is transferred or sold back within 3 years, then the profit exempted will be added to the income in the year of sale/transfer.
The benefits above may be available to the NRI even when he/she becomes a resident – until such an asset is converted to money AND upon submission of a declaration for the application of the special provisions to the Assessing Officer by the NRI.
The NRI may choose to opt out of these special provisions and in that case the income (investment income amd LTCG) will be charged to tax under the usual provisions of the Income Tax Act.
Taxable Income of an NRI
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