An NRI has to pay tax in India on income received in India. Income received outside India is not taxable for NRIs unless they are Residents under the Indian tax laws. The tax liabilities of an NRI are mainly regulated by the Income Tax Act, 1961, and their residential status in a financial year decides the rules of taxation that apply to them.
Major Tax Duties of NRIs:
1. Income Tax on Indian Income
- NRIs are required to pay tax on income received or earned in India, including rental income, capital gains from selling property, fixed deposit interest, and dividends.
- Tax rates applicable to NRIs are identical to resident Indians based on income bands.
2. Exemptions on Overseas Income
- Income received abroad is not to be taxed in India unless the NRI becomes a resident if the duration of their stay extends.
3. Capital Gains Tax on Property
- In case the NRI disposes of property in India, Capital Gains Tax is paid based on the period of holding:
- Short-Term Capital Gains (STCG): Where the property has been held for less than 2 years, the tax is imposed according to the relevant income tax slab.
- Long-Term Capital Gains (LTCG): In case the property is held for over 2 years, a 20% tax with indexation advantage is levied.
4. Double Taxation Avoidance Agreement (DTAA)
- India has DTAA arrangements with most nations to avoid taxation of NRIs twice on a single income. NRIs may claim relief under these agreements through the submission of a Tax Residency Certificate (TRC) issued by the resident country.
5. Filing Income Tax Returns (ITR)
- NRIs need to file an ITR in India if they have a taxable income of over ₹2.5 lakh a year or income from property or investments in terms of capital gains.
- The deadline for submitting ITR is July 31st of every assessment year.
