As a Non-Resident Indian (NRI), understanding the applicable income tax slabs and rates in India is crucial for managing your tax obligations. The income tax slabs and rates for NRIs are determined by the Indian government and are subject to changes in each Union Budget.
Tax Residency Status
Before delving into the tax slabs and rates, it’s important to determine your residential status. As per the Income Tax Act, 1961, an individual is considered an NRI if they are a resident of India for 182 days or less in the current financial year and a resident of India for 365 days or less in the four preceding financial years
Income Tax Slabs for NRIs
The income tax slabs for NRIs are the same as for resident Indians. However, NRIs are not eligible for certain exemptions and deductions available to residents. Tax Slabs for AY 2024-25
The Finance Act 2023 has changed Section 115 BAC, effective from AY 2024-25, making the new tax regime the default for individuals, HUFs, AOPs (except co-operative societies), BOIs, and Artificial Juridical Persons. However, eligible taxpayers can still opt out of the new tax regime and choose the old tax regime. The old regime allows taxpayers to claim various deductions and exemptions that were available before the new regime started.
For those without business income (“non-business cases”), the choice between the two regimes can be made every year when filing their Income Tax Return (ITR) by the due date under Section 139(1). For taxpayers with income from business or profession, if they want to switch to the old tax regime, they must file Form 10-IEA by the due date under Section 139(1). If they later want to switch back to the new tax regime, they must also use Form 10-IEA.
However, taxpayers with business or professional income can switch back to the old tax regime only once in their lifetime.
The current income tax slabs for NRIs of 60 years or more but less than 80 years of age anytime during the previous year are as follows:
| Income Tax Slab (New Tax Regime u/s 115 BAC) | Tax Rate |
| Up to ₹ 3 lakh | NIL |
| ₹ 3 lakh to ₹ 6 lakh | 5% above ₹ 3,00,000 |
| ₹ 6 lakh to ₹ 9 lakh | ₹ 15,000 + 10% above ₹ 6,00,000 |
| ₹ 9 lakh to ₹ 12 lakh | ₹ 45,000 + 15% above ₹ 9,00,000 |
| ₹ 12 lakh to ₹ 15 lakh | ₹ 90,000 + 20% above ₹ 12,00,000 |
| Above ₹ 15 lakh | ₹ 1,50,000 + 30% above ₹ 15,00,000 |
The current income tax slabs for NRIs of 80 years of age or more anytime during the previous year are as follows”
| Income Tax Slab (New Tax Regime u/s 115 BAC) | Income Tax Rate |
| Up to ₹3,00,000 | Nil |
| ₹ 3,00,001 – ₹ 6,00,000 | 5% above ₹ 3,00,000 |
| ₹ 6,00,001 – ₹ 9,00,000 | ₹ 15,000 + 10% above ₹ 6,00,000 |
| ₹ 9,00,001 – ₹ 12,00,000 | ₹ 45,000 + 15% above ₹ 9,00,000 |
| ₹ 12,00,001 – ₹ 15,00,000 | ₹ 90,000 + 20% above ₹ 12,00,000 |
| Above ₹ 15,00,000 | ₹ 1,50,000 + 30% above ₹ 15,00,000 |
It’s important to note that these slabs are subject to change in each Union Budget.
Recent Changes and Benefits
- New Tax Regime: The government introduced a new tax regime in the Union Budget 2020-21, which offers lower tax rates but with fewer deductions and exemptions. NRIs can choose between the old and new tax regimes while filing their income tax returns.
- Surcharge: The surcharge rates for NRIs have been revised in recent years. The current surcharge rates are:
| Total Income | New Tax Rate |
| Up to Rs. 50 Lakh | Nil |
| Above Rs. 50 Lakh and up to Rs. 1 Crore | 10% |
| Above Rs. 1 Crore and up to Rs. 2 Crore | 15% |
| Above Rs. 2 Crore and up to Rs. 5 Crore | 25% |
| Above Rs. 5 Crore | 25% |
The maximum surcharge rate on income from dividends or income under Sections 111A, 112A, and 115AD is capped at 15%. For an association of persons (AOP) where all members are companies, the maximum surcharge rate on income tax is also limited to 15%, effective from AY 2023-24.
- Rebate under Section 87A: This provides a tax rebate to individual taxpayers whose total income does not exceed a specified limit. For AY 2024-25, individuals with a total income of up to ₹5 lakh are eligible for a rebate of up to ₹12,500. This rebate is applied directly to the tax payable, meaning if the calculated tax is less than ₹12,500, no tax will be payable by the taxpayer. This rebate is available under both the old and new tax regimes.
- Tax Deducted at Source (TDS) on Property Sale: When a Non-Resident Indian (NRI) sells property in India, the buyer is required to deduct Tax Deducted at Source (TDS) only if the sale value exceeds ₹50 lakh. For property transactions valued below ₹50 lakh, TDS is not applicable.
Here are the key details regarding TDS for NRIs selling property:
- TDS Applicability: TDS is mandatory for property sales exceeding ₹50 lakh. For sales below this threshold, there is no requirement to deduct TDS..
- TDS Rates: If applicable, the TDS rate is typically 20% for long-term capital gains (properties held for more than two years) and 30% for short-term capital gains (properties held for two years or less) based on the seller’s income tax slab rates.
- Buyer’s Responsibility: The buyer is responsible for deducting the TDS before making the payment to the seller and must deposit it with the Income Tax Department.
This framework ensures compliance with Indian tax regulations during property transactions involving NRI and ensures compliance with tax laws when an NRI sells property in India.
Taxable Income for NRIs
Non-Resident Indians (NRIs) are subject to taxation in India on income earned or accrued within the country. Here’s a detailed overview of what constitutes taxable income for NRIs:
NRIs are required to pay tax on various types of income generated in India, which includes:
- Salaries: Income from employment in India is taxable if it is received in India or earned for services rendered in India. This includes salaries paid directly into an Indian bank account or received by someone on behalf of the NRI in India.
- Income from House Property: Any rental income or income from property located in India is taxable. NRIs can claim a standard deduction of 30% on this income, along with deductions for property taxes and interest on housing loans under Section 24 and Section 80C.
- Capital Gains: NRIs must pay tax on capital gains from the sale of assets located in India, including real estate and shares. The tax rates differ for short-term and long-term capital gains.
- Interest Income: Interest earned from fixed deposits, savings accounts, and other financial instruments in Indian banks is taxable. However, interest on Non-Resident External (NRE) and Foreign Currency Non-Resident (FCNR) accounts is exempt from tax, while interest on Non-Resident Ordinary (NRO) accounts is taxable.
- Other Income: This includes income from business activities conducted in India, dividends from Indian companies, and any other income generated within the country.
Exemption of Foreign Income
Income earned outside India is generally exempt from taxation in India for Non-Resident Indians (NRIs). This means that salaries, investments, or any other income generated abroad typically do not attract Indian tax liabilities, unless specific conditions apply or agreements, such as Double Taxation Avoidance Agreements (DTAAs), are in place. Here are the key points regarding the exemption of foreign income for NRIs:
- General Rule: NRIs are not taxed on income earned outside India. This includes salaries, investment income, and other earnings generated abroad.
- Conditions for Taxation: Foreign income may be subject to Indian tax if:
- The NRI becomes a resident for tax purposes, which occurs if they stay in India for 182 days or more during the financial year or meet other specific criteria.
- Income arises from a business controlled or a profession set up in India.
- Double Taxation Avoidance Agreements (DTAAs): NRIs can claim relief from double taxation through DTAAs signed between India and their country of residence. These agreements allow NRIs to avoid being taxed on the same income in both countries. There are two primary methods to claim relief:
- Exemption Method: Taxed in only one country and exempted in another.
- Tax Credit Method: Where income is taxed in both countries, tax relief can be claimed in the country of residence.
Specific Exemptions for NRIs
Certain types of income earned by NRIs may be exempt from Indian tax, including:
- Interest on NRE and FCNR Accounts: Interest earned on Non-Resident External (NRE) accounts and Foreign Currency Non-Resident (FCNR) accounts is exempt from tax in India.
- Life Insurance Proceeds: Amounts received under life insurance policies are exempt from tax, provided certain conditions are met.
- Capital Gains: Long-term capital gains from the sale of specified assets may also be exempt up to a certain limit, provided the necessary taxes are paid.
Filing Requirements
NRIs must file an income tax return in India if their total taxable income exceeds the basic exemption limit of ₹2.5 lakh during the financial year. The due date for filing is typically July 31 of the assessment year.
Understanding these aspects of taxable income is crucial for NRIs to ensure compliance with Indian tax laws and to effectively manage their tax liabilities.
Tax Compliance for NRIs
Non-Resident Indians (NRIs) are required to comply with specific tax regulations in India. Here are the key points regarding tax compliance and deductions for NRIs:
Filing Requirement: NRIs must file an income tax return in India if their taxable income in India exceeds the basic exemption limit of ₹2.5 lakh (note ₹3 lakh as mentioned in your query) during the financial year.
Due Date: The usual deadline for filing income tax returns for NRIs is July 31 of the assessment year.
Claiming Tax Deductions and Exemptions
While NRIs are not eligible for certain deductions available to resident taxpayers, they can still claim several deductions to minimize their tax liability:
- Section 80C: Investments in specified instruments such as life insurance premiums, Public Provident Fund (PPF), and National Pension Scheme (NPS).
- Section 24: Deduction for housing loan interest on properties situated in India.
- Section 80D: Deductions for premiums paid on medical insurance.
Additionally, NRIs can also claim deductions under other sections like 80G for donations, and 80TTA for interest on savings accounts, among others, depending on their specific circumstances.
It’s crucial for NRIs to stay updated with the latest tax regulations and consider consulting a tax professional for personalized advice.
Double Taxation Avoidance Agreements (DTAA)
Double Taxation Avoidance Agreements (DTAAs) play a crucial role for Non-Resident Indians (NRIs) in managing their tax obligations effectively. Here’s an overview of how DTAAs function in the context of NRIs:
Understanding DTAAs
- Purpose: DTAAs are treaties between India and other countries designed to prevent double taxation of income. They ensure that NRIs do not pay tax on the same income in both India and their country of residence.
- Signatory Countries: India has signed DTAAs with over 90 countries, including major economies like the USA, UK, Canada, and Australia. These agreements specify which country has the right to tax various types of income.
Benefits of DTAAs for NRIs
Tax Relief: DTAAs delineate which country has primary taxing rights over different income types, such as salaries, dividends, and interest. This prevents double taxation and reduces the overall tax burden for NRIs.
Clarity and Certainty: The agreements provide clear guidelines on taxation, helping NRIs comply with tax laws in both countries and minimizing disputes with tax authorities.
Promotion of Investment: By eliminating double taxation, DTAAs encourage cross-border investments, making it easier for NRIs to engage in business and investment activities in India.
Enhanced Cooperation DTAAs often include provisions for sharing tax-related information between countries, which helps combat tax evasion and ensures fair compliance..
Claiming DTAA Benefits
To benefit from DTAAs, NRIs need to follow specific procedures:
- Documentation: NRIs must submit a Tax Residency Certificate (TRC), Form 10F, and their Permanent Account Number (PAN) to claim DTAA benefits. The TRC is essential to prove tax residency in the foreign country[2][4].
- Methods of Relief: There are three primary methods NRIs can use to claim relief under DTAAs:
- Exemption: NRIs can claim exemption from tax in either the country of residence or the source country.
- Tax Credit: NRIs can claim a credit for taxes paid in one country against their tax liability in the other country.
- Deduction: The country of residence may allow a deduction for taxes paid in the source country.
For NRIs, understanding and utilizing DTAAs is essential for effective tax planning and compliance. By leveraging these agreements, NRIs can significantly reduce their tax liabilities and avoid the pitfalls of double taxation on their income. It is advisable for NRIs to consult with tax professionals to navigate the complexities of international taxation and ensure they are making the most of the benefits available under DTAAs.
Conclusion
Understanding the income tax slabs, rates, and recent changes is crucial for NRIs to manage their tax obligations in India effectively. By leveraging the available deductions and exemptions and claiming relief under DTAAs, NRIs can optimize their tax planning and minimize their tax liability.
The basic exemption limit for individuals, including Non-Resident Indians (NRIs), under the Income Tax Act in India is as follows:
- For Financial Year 2023-24 (Assessment Year 2024-25): The basic exemption limit is ₹2.5 lakh for individuals below 60 years of age.
- For individuals aged 60 years and above but below 80 years: The exemption limit is ₹3 lakh.
- For senior citizens aged 80 years and above: The exemption limit is ₹5 lakh.
Under the new tax regime introduced in the Budget 2020, taxpayers have the option to choose between the old tax regime (with deductions and exemptions) and the new tax regime (with lower tax rates but fewer deductions). The basic exemption limit remains the same at ₹2.5 lakh for individuals below 60 years, while it is ₹3 lakh for senior citizens.
It is advisable to consult with a tax professional or refer to the latest tax laws and regulations for accurate and up-to-date information regarding NRI taxation in India. For further information, please feel free to Contact us.