Income tax rules applying to non-residents are slightly different from those
for residents. When it comes to tax sops, investment options and TDS, they are
less favourable. Read about some significant income tax aspects relating to
NRIs.
No differential tax slabs for non-residents
For NRIs, income is the only differentiator in tax slabs. There are no special slabs based on gender, age etc like is the case for residents.
TDS applied at highest rates for all incomes of NRIs
Some incomes like capital gains, interest do not attract TDS or only attract it beyond a threshold income in case of residents. However, for NRIs all incomes, which are taxable, attract TDS. There is no threshold income for TDS.
For example, FD interest attracts TDS beyond Rs 10,000 a year for residents. However, for NRIs any interest, however small, attracts TDS.
Moreover, for non-residents, TDS is applied at the highest tax rate for that particular kind of income.
Going by that rule, in the example of FDs, though interest is taxable at the marginal tax slab of the individual, TDS is applied at 30 percent.
Due to this, NRIs would have to claim tax refund if more is being deducted than is their tax liability. Alternatively, they can submit Tax Exemption Certificate to all their deductors directing them to deduct less tax or nil tax, as applicable.
Read TDS Dilemma of NRIs for more on how due to applicability of TDS more tax could be deducted than what an NRI is supposed to pay.
Tax deductions and exemptions for NRIs
Scope of deductions and exemptions is narrower for NRIs. No deductions are allowed on investment income. Chapter VI A deductions, which make up most of the popular deductions like ELSS, insurance premium, home loan principal repayment etc are not allowed for a non-resident for income from investments or long-term capital gains. If gross total income includes income from such sources then that is to be deducted for computing deductions.
If an NRI's gross total income is, say, Rs 4 lakhs of which Rs 2 lakhs is from investment income or long-term capital gains then he cannot claim any deduction.
For more on tax deductions and exemptions available for NRIs read article.
Income tax return filing for NRIs
NRIs do not need to file tax returns if satisfying the 2 conditions in sec 115G. If their income in India consisted of only of investment income or long-term capital gains and if TDS was applied on such income then they need not file tax returns.
However, it goes without saying that in case refund is to be claimed then tax return would have o be filed.
No differential tax slabs for non-residents
For NRIs, income is the only differentiator in tax slabs. There are no special slabs based on gender, age etc like is the case for residents.
TDS applied at highest rates for all incomes of NRIs
Some incomes like capital gains, interest do not attract TDS or only attract it beyond a threshold income in case of residents. However, for NRIs all incomes, which are taxable, attract TDS. There is no threshold income for TDS.
For example, FD interest attracts TDS beyond Rs 10,000 a year for residents. However, for NRIs any interest, however small, attracts TDS.
Moreover, for non-residents, TDS is applied at the highest tax rate for that particular kind of income.
Going by that rule, in the example of FDs, though interest is taxable at the marginal tax slab of the individual, TDS is applied at 30 percent.
Due to this, NRIs would have to claim tax refund if more is being deducted than is their tax liability. Alternatively, they can submit Tax Exemption Certificate to all their deductors directing them to deduct less tax or nil tax, as applicable.
Read TDS Dilemma of NRIs for more on how due to applicability of TDS more tax could be deducted than what an NRI is supposed to pay.
Tax deductions and exemptions for NRIs
Scope of deductions and exemptions is narrower for NRIs. No deductions are allowed on investment income. Chapter VI A deductions, which make up most of the popular deductions like ELSS, insurance premium, home loan principal repayment etc are not allowed for a non-resident for income from investments or long-term capital gains. If gross total income includes income from such sources then that is to be deducted for computing deductions.
If an NRI's gross total income is, say, Rs 4 lakhs of which Rs 2 lakhs is from investment income or long-term capital gains then he cannot claim any deduction.
For more on tax deductions and exemptions available for NRIs read article.
Income tax return filing for NRIs
NRIs do not need to file tax returns if satisfying the 2 conditions in sec 115G. If their income in India consisted of only of investment income or long-term capital gains and if TDS was applied on such income then they need not file tax returns.
However, it goes without saying that in case refund is to be claimed then tax return would have o be filed.
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