Almost 30 million NRIs are living across the world in countries mainly Canada, Singapore, the UK, the USA, and more.There are certain new rules introduced for Income Tax for NRI as per the Finance Act 2020 and 2021.
What Is the Residential Status as a Part of Income Tax Rules for NRI
The criteria of residential status concerning NRIs is determined under Section 6 of the Income Tax Act, 1961, Income tax rule. It includes an income threshold of Rs 1.5 million which is considered for determining whether an individual gets residential status in India or not.
From When the New Income Tax Rules Are Effective
The new income tax rules for NRI became effective from Financial Year 2020-21. The government has introduced new rules to simplify the tax reforms for NRIs in India.
Rules Implemented
NRIs are mainly Indian citizens residing abroad and persons of Indian origin who visit India for less than 182 days in the whole financial year. But as per new income tax rules, the government reduced the tenure from 182 days to 120 days for all those NRIs whose annual income exceeds Rs 15 Lakhs.
At present, the government has asked NRIs to fill ITR 2 and ITR 3. But at a later stage, they are planning to introduce voluntary compliance for NRIs by making simple ITR forms for them.
What Does FEMA Say?
As per the definition laid down by FEMA (Foreign Exchange Management Act), an NRI is liable to pay tax in India if only they spend a minimum of 120 days in India. The taxation is determined, and the Income Tax Department calculates whether the NRI has stayed in India for a minimum of 365 days in the last 4 years from the present financial year.
- If they are meeting the above mentioned criterion, an NRI can hold the residential status and become liable to pay taxes.
- If you are a resident of India, then the global income is taxable in India as per new income tax rules.
- If you are a non-resident Indian, then only the income you are generating in India is taxable.
Other Rules Introduced for NRI as per the Finance Act 2020 and Finance Act 2021
As per the Finance Act 2020 and Finance Act 2021, a few more rules were introduced for NRI. Here’s a list of them.
Double Tax Avoidance Agreement
The Double Tax Avoidance Agreement is also known as DTAA. It is a treaty between countries so that an NRI doesn’t have to pay double taxes on earned income. If you already pay taxes in India, then even if you are residing outside India, you don’t have to pay taxes in that country.There may be a difference in tax slabs, in that scenario, you are required to pay the difference as residual taxes in the country where you are living.
For example, if you are required to pay 20% tax in the USA on an income of 16 lakhs. There may be a possibility that India is charging 15% on the same income. But this does not mean you are exempted from the 5% tax. You have to pay the difference as residual tax in the USA. In case, you are residing in the Gulf region, there are no taxation rules, in that scenario, even India cannot imply tax on your earnings.
The Documents Required to Avail of Tax Benefits Under DTAA as Part of NRI Tax
Have a look at the important documents required to avail of tax benefits under DTAA as a part of NRI Tax.
- Self-attested PAN card copy
- Self-declaration indemnity format
- Self-attested passport and visa copy
- Tax residency certificate
Important Facts to Know
An Individual cannot claim any benefit of relief under a double taxation avoidance agreement without submitting a tax residency certificate to the deductor. For obtaining a tax residency certificate, you are required to apply Section 90A and Section 90 of the Income Tax Act, 1961. Once the application is completed, you will get a tax deduction certificate which will be issued in form 10FB.
NRI Income Tax Slab Rates
The income tax slab rates of NRI TAX are diversified according to the earnings of the individual. The NRI Income Tax is the percentage of the annual earnings of an individual.
Here is the Income Tax Slab of NRI
| Income Tax Slab | Tax Rate |
| Up to 2.5 Lakhs | NIL |
| 2.5 Lakhs-5 Lakhs | 5% |
| 5 Lakhs – 7.5 Lakhs | 10% |
| 7.5 Lakhs-10 Lakhs | 15% |
| 10 lakhs-12.5 Lakhs | 20% |
| 12.5 Lakhs-15 Lakhs | 25% |
| 15 Lakhs and above | 30% |
Tax Exemptions for Non-Resident Indians at the Time of NRI Tax
Here’s a list of exemptions for non-resident Indians at the time of NRI tax:
- The salary getting from a job in India, fixed deposits, capital gains, and income earned from a savings bank account all are taxable in India.
- Any Income that is earned outside India is non-taxable.
- Any interest earned from the FCNR or NRE accounts is tax-free.
- Many NRIs are engaging in buying and selling immovable properties in India. Sometimes gifted to them by their parents or inherited themselves. In case an NRI is planning to sell the property, the buyer in that scenario will deduct 20% TDS.
- As a seller, if NRI wants the buyer to deduct TDS on the capital gain amount, he or she is required to apply for a lower tax deduction certificate from the Income Tax Department of India.
- An NRI can claim tax exemption under Section 80G of the Income Tax Act for making donations.
- One can claim tax exemptions under Section 80TTA for interest earned on a savings account is INR 10,000.
- Getting any long-term capital gains on the property being NRI for 36 months is usually taxable, but one can claim NRI tax exemption if one buys another property in India or purchases any bonds.
- Deductions that take place according to Section 80C of the Income tax act are tax exempted. Life insurance Premiums, payment of tuition fees, loans taken from India, investments made in ULIPs, or any deductions from house property income are part of Section 80C.
Bottom Line
The Non-Resident Indians are also required to follow the tax norms defined under Income Tax Act 1961. The NRI tax covers every aspect of taxation rules be it property tax, wealth tax, or income tax.
