If you are a Non-Resident Indian (NRI), it is important to know how much tax you have to pay in India. The government of India decides the tax rates and rules. These rules can change every year when the new budget is announced.
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, a person is an NRI if they live in India for 182 days or less in a year and 365 days or less in the last 4 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
Starting in 2024, the Finance Act 2023 amended Section 115BAC, making the new tax system the default option. This applies to individuals, families, and certain groups, including Hindu Undivided Families (HUFs), Association of Persons (AOPs), Body of Individuals (BOIs), and Artificial Juridical Persons (AJs). 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.
If you don’t have a business, you can choose between two tax systems every year. You must file your Income Tax Return (ITR) by the due date under Section 139(1) of the Income Tax Act, 1961.
If you have income from a business or profession, the rules are different. To switch to the old tax system, you must file Form 10-IEA. This form must be submitted by the due date under Section 139(1). Once you switch, you can only change it once in your lifetime. Once you switch, you can only change it once in your lifetime. 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.
New Tax Regime u/s 115 BAC
The current income tax slabs for NRIs less than 60 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 ₹ 3,00,000 | 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 |
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 government caps the maximum surcharge rate on income from dividends or income under Sections 111A, 112A, and 115AD at 15%. For an association of persons (AOP) where all members are companies, the government also limits the maximum surcharge rate on income tax to 15%, effective from AY 2023-24.
Rebate under Section 87A
If your total income is less than ₹5 lakh, you can get a rebate of up to ₹12,500. This means if your tax is less than ₹12,500, you won’t need to pay any tax. You can claim this rebate under both the old and new tax systems.
Tax Deducted at Source (TDS) on Property Sale
If your total income is less than ₹5 lakh, you can get a rebate of up to ₹12,500. This means if your tax is less than ₹12,500, you won’t need to pay any tax. You can claim this rebate under both the old and new tax systems.
TDS for NRIs selling property
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 TDS applies, the tax rate is usually 20% for long-term capital gains (if the property was held for more than two years) and 30% for short-term capital gains (if the property was held for two years or less). The rate depends on the seller’s income tax bracket.
- Buyer’s Responsibility: The buyer must deduct the tax before paying the seller. The buyer also needs to deposit the tax 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 show which country can tax different types of income like salaries, dividends, and interest. This stops double taxation and helps NRIs pay less tax.
Clarity and Certainty: The agreements make tax rules clear, so NRIs can follow the laws in both countries and avoid problems with tax authorities.
Promotion of Investment: By stopping double taxation, DTAAs make it easier for NRIs to invest and do business in India.
Enhanced Cooperation: DTAAs also help countries share tax information. This helps stop tax cheating and makes sure taxes are paid fairly.
Claiming DTAA Benefits
To benefit from DTAAs, NRIs need to follow specific procedures:
- Documentation: NRIs need to show a Tax Residency Certificate (TRC), Form 10F, and their Permanent Account Number (PAN) to get DTAA benefits. The TRC proves they are a tax resident in another country.
- Ways to Get Tax Relief: There are three main ways NRIs can get relief under DTAAs
- Exemption: NRIs can be exempt from tax in either their home country or the country where the income comes from.
- Tax Credit: NRIs can get credit for taxes paid in one country and use it to reduce taxes in the other country.
- Deduction: The country where the NRI lives might allow them to subtract taxes paid in the other country.
For NRIs, understanding and using DTAAs is very important for managing taxes. These agreements help NRIs pay less tax by allowing them to avoid being taxed twice. This helps them avoid double taxation on their income. It is a good idea for NRIs to consult with tax professionals. They can help navigate the complexities of international taxation. This ensures that NRIs take full advantage of the benefits available under DTAAs.
Conclusion
It is important for NRIs to understand the income tax slabs, rates, and recent changes. This helps them manage their tax obligations in India effectively. By using available deductions and exemptions, NRIs can reduce their tax liability. They can also claim relief under DTAAs. This allows NRIs to optimize their tax planning and minimize taxes.
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 can choose between the old and new tax regimes. The old tax regime offers deductions and exemptions, while the new tax regime has lower tax rates but fewer deductions. The basic exemption limit stays the same at ₹2.5 lakh for individuals under 60 years. For senior citizens, the basic exemption limit is ₹3 lakh.
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.