Taxation of Non-Resident Individual (NRI) Part 2 :Tax Provisions for NRI

By: Ayushi Raja

 

(The author is an article assistant at SSRPN & Co. She can be approached at cassrpn@gmail.com)

In the previous article we discussed briefly the meaning, concept and basis for determination of Residential status. The link for the same has been provided hereby.

https://thetaxtalk.com/2022/03/01/taxation-of-non-resident-a/

Now, in this article we shall  understand the tax provisions where the income of a Non Resident is taxable.

NRI Taxation Rules:

Rules for Taxation in India for a NRI are very different from that of a normal Resident of India. Some important points to be noted are as under:

• The Tax slabs for a NRI depends on his/her total income, and not upon their age, gender or any other factor.

• No rebate under Section 87A shall be allowed to NRI’s.

• 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 some 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.

Tax Exemptions for NRIs:

The incomes that are exempted from tax are as follows –

• Interest earned on Non Resident External (NRE)/ Foreign Currency Non Resident Bank Account (FCNR) accounts.

• Interest earned on savings certificates and notified bonds issued by government.

• Dividend income earned from shares of domestic Indian companies.

• Long term capital gains from listed equity shares and equity-oriented mutual funds.

• Capital gains can be exempted through the sections and conditions as-

  • Section 54 – In case a house property is held for 3 or more years is sold and the proceeds or part thereof are used to purchase another property or deposited in a PSU or other banks as per the Capital Gains Account Scheme of 1988.

  • Section 54F – In case any property other than a house is sold and capital gains are incurred, this exemption can be claimed on the construction or purchase of a new house in proportion to how much of the sale proceeds have been spent on the new asset.

For detailed explanation of Section 54F, refer the link given below.

  https://thetaxtalk.com/2022/02/25/a-capital-asset/

• Section 54EC – If long term capital gains are invested in bonds like the ones issued by the National Highway Authority of India and Rural Electrification Corporation. These have a redemption value after 3 years and shouldn’t be sold before that. In such cases, as per the budget of 2014, a maximum of INR 50 lakhs can be invested in a financial year.

For detailed explanation of Section 54EC, refer the link given below.

https://thetaxtalk.com/2022/02/19/invest-in-specified/

Income Tax Return :

NRI or not, any individual whose income exceeds Rs 2,50,000 is required to file an income tax return in India.

July 31st is the last date to file income tax returns in India for NRIs unless the government extends.

If NRIs tax liability exceeds Rs 10,000 in a financial year, they must pay advance tax. Interest under Section 234B and Section 234C is applicable if advance tax is not paid.