Income tax rules for NRI returning to India

Under Indian tax provisions, NRI is an individual who is an Indian citizen or person of Indian Origin who is not a resident in India. RBI issues guidelines on varied matters relating to an NRI individual. These guidelines relate to opening and maintaining of bank accounts in India as well as for investments in and outside India. Income Tax for NRI will depend upon his Residential Status for the year. It is important to determine the residential status of an individual before determining their taxability.

Who is NRI?

As per Income Tax Act, an individual is considered as a Resident in India, if the individual meets either of the “basic conditions” of presence in India as below:

  • 182 days or more during the current Financial Year; or
  • 60 days or more during the current Financial Year and 365 days or more in total during 4 preceding Financial Year.

If neither of these two conditions is satisfied, the individual would be treated as an NRI. The tax year is calculated from April 1 to March 31. Further, there is another category of non resident Indians, known as ‘Not Ordinarily Resident’ (NOR). You can become an NOR either if your stay in India:

  • In the 7 financial years immediately preceding that financial year is less than 729 days, or
  • If you were a Non-Resident for 9 of the 10 financial years immediately preceding that financial year.
Residential Status Calculator
Residential Status Calculator for Income Tax. Taxability in India depends on residential status. Know your residential status from Resident, NRI, Resident but Not Ordinarily Resident(RNOR)
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Residential Status Calculator
Residential Status Calculator for Income Tax. Taxability in India depends on residential status. Know your residential status from Resident, NRI, Resident but Not Ordinarily Resident(RNOR)
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Tax Implications for NRI Returning to India

The taxability of your income outside India (such as rental income from property outside India, capital gains, bank interest, dividends, etc.) arising out of your assets (such as bank accounts, stocks/securities, residential properties, etc.) shall majorly depend on your residential status in India.

While returning to India you may sell your overseas assets in capacity of a NOR or NRI. In such cases if you sell any overseas assets and receive the sale proceeds outside India, you do not have to pay any taxes in India. Further, you can first receive the sale proceeds in an overseas bank account and thereafter remit part or whole of the proceeds back to India without creating any Indian tax liability.

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Tax Liabilities for NRI Returning to India

Taxability in India is dependent on whether an individual qualifies as a Resident, NOR or Non-Resident. For income which accrues or arises outside India and received outside India during the preceding previous years and remitted to India during the previous year is not taxable to NOR/ NRI.

For income received or deemed to be received or accrues or arises in India during the previous year, is fully taxable for NOR/ NRI. However they can take the benefit of DTAA (Double Tax Avoidance Agreement) between the two countries for the doubly taxed income. This can help avoid paying tax on the same income twice.

The income which accrues or arises outside India and received outside India in the previous year from any other source is not taxable for NOR/ NRI.

Other Considerations while Returning to India

  • As per the guidelines, an individual is required to intimate the change in his residency to the concerned institutions such as banks, financial institutions, mutual fund, etc.
  • For instance, balances held in Non Resident Ordinary (NRO) account will have to be converted to resident status i.e. a normal savings account once the individual becomes a resident in India.
  • FCNR accounts can be continued till the date of maturity and upon maturity, can be converted to RFC accounts.
  • One should keep in mind that under DTC, a person may qualify as Resident Indian on account of removal of NOR concept. In such situation, it would bring assets situated outside India under the ambit of wealth tax.
  • DTC also proposes to levy wealth tax on net wealth in excess of INR 1 crore as compared to 30 lakhs of existing provisions.
  • Resident Foreign Currency is a Scheme approved by RBI that permits persons of Indian nationality or origin to open foreign currency accounts with banks in India for holding funds brought by them to India. It is permitted for those who have returned to India on or after 18th April 1992 for permanent settlement (Returning Indians), after being resident outside India for a continuous period of not less than 1 year.
  • Further, if the Returning NRI had been non-resident for a continuous period of 2 years, he gets exemption from income-tax for subsequent 9 years on the interest earned in RFC account.
  • Returning individuals should therefore focus on understanding the impact on India taxation, and plan their taxation matters accordingly.
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FAQ

Can a resident continue to maintain an account outside India, which was opened by him when he was a non-resident?

A person resident in India might maintain a foreign currency account outside India if he had opened it when he was resident outside India or inherited it from a person resident outside India.

What is RFC Account? What are the types of individual RFC accounts that a returning NRI can open?

An RFC (Resident Foreign Currency) Savings Account is a savings account maintained in foreign currencies for NRIs who have returned to India and hold funds in foreign currency. The types of RFC accounts are: Savings Bank, Current account and Term Deposits.

What will be the status of bank accounts of NRIs returning to India permanently?

Non-resident accounts will be re-designated to resident accounts in India on the return of the account holder to India and consequently becoming resident in India.

Can NRI continue with resident savings account?

Most individuals make a mistake of continuing a resident savings account even after becoming an NRI but the law does not allow it. Or in simple words, it is illegal to hold resident savings bank account for NRIs and it will attract hefty penalties.

Relief under section 90, 90A and 91

When you move out of India during a financial year and start earning in another country or still have some financial interest in India, the taxation becomes a little bit more complicated. You would not only be taxed in the new country that you have moved to but might also be taxed in India. To avoid taxing the same income twice relief is available under section 90, 90A and 91. Tax relief can be claimed as follows:

  • There exists DTAA with the Country, then Tax Relief can be claimed u/s 90.
  • If there is DTAA with the Specified Associations, then Tax Relief can be claimed u/s 90A.
  • In case there is No DTAA, then Tax Relief can be claimed u/s 91.

Types of Relief

Relief from Double Taxation can be provided in two ways:

  • Bilateral Relief: When there is an agreement between two countries, relief is calculated as per the mutual agreement between such two countries. Bilateral relief can be granted by either of the following methods:
    • Exemption Method: Under this method, income is taxed in only one country
    • Tax Relief Method: Under this method, income is taxed in both countries. Relief is granted in the country of residence.
  • Unilateral Relief: When there is no mutual agreement between the countries, relief is provided by the home country.
Residential Status Calculator
Residential Status Calculator for Income Tax. Taxability in India depends on residential status. Know your residential status from Resident, NRI, Resident but Not Ordinarily Resident(RNOR)
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Residential Status Calculator
Residential Status Calculator for Income Tax. Taxability in India depends on residential status. Know your residential status from Resident, NRI, Resident but Not Ordinarily Resident(RNOR)
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Relief under Section 90

Section 90 of the Income Tax Act is associated with relief measures for taxpayers involved in paying taxes twice i.e. paying taxes in India as well as in Foreign Countries or territory outside India. This section also contains provisions that will certainly enable the Central Government to enter into an agreement with the Government of any country outside India or a definite territory outside India. Further, it intends to grant relief for the taxes paid in India and in any country outside India. Let us understand with an example:

Mr. Ankit, a resident, earned income in India INR 4,00,000/-. He also earned income from a foreign country INR 1,00,000 (Tax paid in foreign country INR 10,000). How much tax relief can he claim and how much tax he has to pay?

The relief shall be calculated as follows:

  1. Global income is INR 5,00,000/- (4,00,000+ 1,00,000)
  2. Tax on global income INR 12,500/-
  3. Average rate of tax INR 2.5% (12,500/5,00,000100)
  4. Tax required to be paid INR 2,500/- (Rs.1,00,0003*2.5/100)
  5. Tax paid in a foreign country is INR 10,000/-.
  6. The amount of relief shall be lower of (4) and (5) i.e INR 2,500/-

Relief u/s 90A

  • When there is DTAA with the Specified Associations, then Tax Relief can be claimed u/s 90A and shall be calculated in the same manner as Section 90.
  • When a specified association in India enters into an agreement with a specified association abroad, the Central Government, may by notification adopt such agreement and can provide relief u/s 90A of the Income Tax Act, 1961.
  • The relief can be claimed only by the residents of the countries who have entered into the agreement with the Government of India. If resident of other countries want to claim the relief, then they have to obtain a Tax Residence Certificate (TRC) from the government of that country.

Relief under section 91

Section 91 shall apply if the country in which tax is paid has not entered into any agreement with the Government of India. Further, where there is no Bilateral Agreement in such cases unilateral agreement applies. Therefore, without any agreement with any other country a relief is given to the assessee as per the following method.

Steps to compute relief

  1. Calculate the tax payable in India
  2. Compare the Indian tax rate and Foreign tax rate
  3. Multiply the lower tax rate with the doubly taxed income
  4. Relief will be the amount as computed in Step 3.

Let us understand this with the help of an example:

Vartika has a doubly taxed foreign income of INR 1,00,000, when the tax payable in India is to be calculated at the rate of 30% and the foreign tax rate is 20%, then the relief is;

  • Tax payable in India 100000*30% = INR 30,000/-
  • Lower tax rate between 30% and 20% is 20%.
  • Relief shall be > 100000*20% = INR 20,000/-
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CA Assisted Income Tax Return filing plan for resident individuals having foreign income.
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FAQ

Can a Non-Resident claim relief U/s 90 ?

Yes, a non-resident can claim relief if his/her income is chargeable to tax under the Income Tax Act, 1961. Therefore, if the income of non-resident is not chargeable to tax, than the question of claiming relief does not arise.

Is the residential status of a person relevant for determining the taxability of the income in his hands?

Yes, the residential status of a person earning income is very much relevant for determining the taxability of such income in his hands.
Taxability of any income in the hands of a person depends on the following two things :
(1) Residential status of the person as per the Income-tax Law; and
(2) Nature of income earned by him.
Hence, residential status plays a vital role in determining the taxability of the income.​.​

How to claim Foreign Tax Credit?

If you are a resident of India, income earned by you anywhere in the world shall be taxable in India. In such cases, you would end up paying taxes on the same income twice. DTAA makes sure that a taxpayer is not doubly taxed for the income earned outside the country of residence. Since income may be taxed at source i.e. from the place it originated and is also usually taxable in the country of residence, the DTAA makes sure that the taxpayer is not adversely impacted. It allows the taxpayer to claim Foreign Tax Credit for the taxes paid outside India.

What is Foreign Tax Credit?

If you have paid taxes in one country, you can claim the credit of the tax paid in the country of your residence when both the countries have DTAA. There are two rules to it which are as follows:

  1. Source Rule: This rule holds that income is to be taxed in the country in which it arises irrespective of whether the income arises to a resident or non-resident.
  2. Residence Rule: This rule holds that the power to tax should rest with the country of residence.

If both rules apply simultaneously to an assessee there will be double taxation. Double taxation means taxing the same income twice in the hands of the assessee. Section 90 aims at handling scenarios where India has signed a DTAA with the other country. While Section 91 handles scenarios where India hasn’t signed any such agreements with another country.

Residential Status Calculator
Residential Status Calculator for Income Tax. Taxability in India depends on residential status. Know your residential status from Resident, NRI, Resident but Not Ordinarily Resident(RNOR)
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Residential Status Calculator
Residential Status Calculator for Income Tax. Taxability in India depends on residential status. Know your residential status from Resident, NRI, Resident but Not Ordinarily Resident(RNOR)
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Rule 128 of Income Tax Rules

With the introduction of Rule 128 and Form 67, most of the confusion around claiming tax credit has been resolved. Foreign Tax credit (FTC) in India is governed by Rule 128 of Income Tax Rules and Applicable from 01.04.2017. The rule covers the following conditions:

  • Only a resident assessee will be eligible to claim FTC if any tax has been paid by him in a country or specified territory outside India.
  • Grant of FTC shall be allowed only in the year in which the income corresponding to such tax has been offered to tax or assessed to tax in India.
  • Income on which foreign tax has been paid or deducted is offered to tax. And credit proportionate to Income offered to tax in that year shall be allowed.
  • Foreign Tax Credit will not be allowed in respect of any sum payable by way of interest or penalty.
  • Where a DTAA has been entered between India and the foreign country, eligible foreign tax shall be the taxes covered under the respective DTAA.
  • No credit shall be available in respect of any amount of foreign tax or part thereof which is disputed in any manner by the assessee.
  • Provided that the credit of such disputed tax shall be allowed for the year in which such income is offered to tax or assessed to tax in India if the assessee within six months from the end of the month in which the dispute is finally settled, furnishes evidence of settlement of dispute and evidence to the effect that the liability for payment of such foreign tax has been discharged by him and furnishes an undertaking that no refund in respect of such amount has directly or indirectly been claimed or shall be claimed
  • Further, the credit of foreign tax shall be the aggregate of the amounts of credit computed separately for each source of income arising from a particular country.
  • The credit allowable shall be the lower of the tax payable under the Act on such income and the foreign tax paid on such income.

Documents required to claim Foreign Tax Credit

In order to claim FTC, the assessee shall be required to furnish the following documents. Such documents shall be furnished on or before the due date return of income under section 139(1) of the Act :

  • Certificate or statement specifying the nature of income and the amount of tax deducted therefrom or paid by the assessee:
    1. from the tax authority of foreign country; or
    2. from the person responsible for deduction of such tax; or
    3. signed by the assessee:
  • Provided that the statement furnished by the assessee in clause (3) above shall be valid if it is accompanied by:
    • an acknowledgment of online payment or bank counterfoil, or challan for payment of tax where the payment has been made by the assessee;
    • proof of deduction where the tax has been deducted.
  • Form 67 to be filed on Income Tax Portal
  • Form No. 67 shall also be furnished in the case where the carry backward of loss of the current year, results in a refund of foreign tax for which credit has been claimed in any earlier previous year or years.

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How to claim Tax Credit on Foreign Income?

If you are a Resident, income earned by you anywhere in the world has to be included in your total income.

  1. Convert income earned outside India into Indian currency as per the reference rates

    Convert your income earned in foreign currency into Indian Rupees by using the State Bank of India telegraphic transfer buying rate (TTBR) of the last day of the month before the month in which income is due.
    For example, for converting foreign income of May 2020, use the TTBR of the relevant currency for April 2020 and convert your foreign income into Indian Rupees.

  2. Now, include this income under the respective income head, for example, include salary income under the head ‘salaries’.

    Treat this income as any other income which is earned by you locally. Basic exemption limit of INR 2,50,000 is allowed on your total income and remaining income is taxable as per income tax slab rates.

  3. If TDS has been deducted from your income you are allowed to take credit for such taxes.

    For this purpose, reference has to be made to the relevant Double Tax Avoidance Agreement (DTAA) of the country where such income has been earned. India has entered into DTAAs with several countries. Further, the taxpayer is also allowed to take credit of TDS deducted.

  4. Obtain TRC Certificate

    Taking the benefit of a DTAA involves obtaining a Tax Residency Certificate (TRC) that helps identify and certify your tax residency status to make sure the correct DTAA has been applied. This is in line with the tax laws in India.

  5. While taking TDS credit, make sure the correct DTAA is applied, so you can take credit for the foreign tax deducted.

    Resident in India earning a foreign income should report such income and foreign assets in the Income Tax Return.

  6. The taxpayer should add details of foreign income i.e. income earned outside India in Schedule FSI of ITR

    Enter the following details with respect to Foreign Income:
    a. Country Code – Select the country in which income is earned
    b. Taxpayer Identification Number
    c. Income outside India – enter the amount of income earned outside India
    d. Taxes paid outside India – tax paid on income earned outside India
    e. Tax payable in India – tax payable in India on income earned outside India
    f. Tax Relief available = tax paid outside India or tax payable in India whichever is lower
    g. Relevant DTAA Article – enter details of the relevant article of DTAA under which the taxpayer claims the tax relief

  7. Once the taxpayer adds details of Foreign Income in Schedule FSI, the details in Schedule TR (Tax Relief) get populated.

    The double taxation relief is reduced from the tax calculation.

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FAQ

How many methods are there to claim DTAA tax relief?

There are two methods to claim DTAA tax relief – exemption method and tax credit method.
– By exemption method, income is taxed in one country and exempted in another.
– In the tax credit method, where the income is taxed in both countries, tax relief can be claimed in the country of residence.

When and how do I file a foreign tax credit form 67?

You should file Form 67 before filing your tax returns. Further, you can prepare and submit Form 67 online on your Income Tax Portal. Once you login navigate to E-file > Select other Forms > Select Form 67 and assessment year from the drop-down

Can anyone claim Foreign Tax Credit?

Only resident Indians can claim for the tax credits, only if they have paid taxes in another country.

Gift to NRI by Resident Indian

The Income Tax Act defines a gift as any asset received without consideration or against inadequate consideration like money or money’s worth. It can be in the form of cash, movable property, or immovable property. In the below article, we will understand how giving or receiving these items as gift to NRI by resident Indian or vice-versa can bring in tax implications and who has to bear them.

  • The movable property shall also include shares, securities, jewelry, archaeological collection, drawing, painting, any work of art, bullion, vehicles, etc.
  • Immovable property shall include land or building or both (it does not include agricultural land in rural areas)

Taxability on Gifts to NRI by Resident Indian

  • For non-residents, only the income which is received or accrued or which is deemed to have been received or accrued in India is taxable in India. This means that the origin of the gift becomes important for tax purposes, instead of the destination of the gift abroad.
  • Further, the treatment of tax on gift to NRI by resident Indian shall depend on gifts to relatives and non-relatives.
  • The below chart depicts the status of taxability:-
 Sr no Particulars Taxability
1. Money (cash, cheque, draft) If money > 50,000; whole amount taxable
2 Value of gifts received less than INR 50000 Not taxable
3 Property/money on the occasion of marriage Completely exempt irrespective of the value
4 Gifts from Specified Relatives Not taxable
5 Gifts from Other than Specified Relatives Not taxable if Value is < 50,000/-
6 Movable Property received as a gift. Taxable if Value > Rs 50,000/- &  received from other than Specified Relatives
7 Immovable Property (Land/House) received as a gift Taxable if Stamp Duty Value > Rs 50,000/- & received from other than Specified Relatives
8 Gifts in the form of shares and securities  The total value can’t exceed INR 50,000/- in one financial year
  • The gift would be taxable if it is in the nature of capital assets in the hands of the recipient. However, any gifts in the nature of stock, raw materials, or consumables that can be used by the recipient in his/her business operation, will not be considered as a capital asset and thus will not be taxable.
  • NRIs have to declare all the taxable gifts while filing Income Tax Returns in India.
  • The gift would be chargeable to tax under the head “Income from other sources” and at normal slab rates.
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Exemption of Gifts

Under the following situations, receipt of gifts shall be non-taxable in hands of recipient irrespective of monetary value:

  • Gift received :
    • from relatives*
    • On the occasion of the marriage,
    • Under a will or by way of inheritance.
    • In contemplation of death of the payer.
    • From local authority.
    • A fund, foundation, university, other educational institution, or other medical institution, hospitals, or any trust or institution defined in Section 10(23C), any trust or institution registered under section 12AA.
  • Further, these exceptions would be applicable even in the context of gift to NRI by resident Indian.

Relative*: Given below is a list of people considered as relatives under the tax regulations:

  • Spouse of the individual
  • Brother and sister (including their respective spouses) of both individual and his/her spouse
  • Brother and Sister (including their respective spouse) of an individual’s father and mother
  • any lineal ascendant or descendant (including their respective spouses) of the individual
  • any lineal ascendant or descendant (including their respective spouses) of the spouse of the individual
  • Everyone else is simply considered as a non-relative.

A Gift to a Resident Indian by NRI

  • Gift received from NRI relative to a resident Indian is exempt from tax in India for both giver and receiver
  • Gifts to Resident Indians from NRIs (non-relative) within INR 50,000/- are exempt from tax for both giver and receiver
  • On gifts to Resident Indians from NRIs (non-relative) exceeding INR 50,000/-, receiver shall be liable to pay tax on the gift. (This shall be taxable as per their income tax slab)
  • Gifts to Resident Indians from NRIs (irrespective of relation) on the occasion of marriage or through a will is exempted from tax in India for both giver and receiver

Another very important aspect while sending or receiving gifts is keeping a record of the same through gift deeds. Furthermore signing a gift deed and keeping them safe can help you to avoid major issues in the future.

FAQ

I am an NRI. If I gift INR 10 lakh to my daughter in India and if she invests it in a bank fixed deposit, will either of us be liable to pay income tax?

As per Section 56(2), any sum received from relatives is exempt from tax. So, if this amount is received as gift from a father, it will be exempt in her hand. Further, as per Section 64, income generated from this gifted amount will be clubbed in her income and she will be required to pay tax and file the return in India if her gross total income exceeds the minimum exemption limit of INR 2,50,000.

How much money can be legally given to a family member as a gift in India?

While gifts received by any person above INR 50,000 are taxable, there are special exemptions for gifts to some specific relatives like children and parents. However there is no limit on the amount that can be gifted.

Can resident gift shares to NRIs?

Gifts from Resident Indians to NRIs in the form of shares and securities of an Indian Company, the total value can’t exceed INR 50,000/- in one financial year. Further, the gift should follow the regulations of RBI

Form 67 : Claiming Foreign Tax Credit

The taxpayer resident in one country may have a source of income situated in another country. This gives rise to double taxation. The Income Tax act itself offers certain provisions to give relief to an individual whose income is likely to be taxed twice. This relief measure lies in a Double Taxation Avoidance Agreement (DTAA) i.e a tax treaty that India signs with another country. In order to claim the relief, the taxpayer shall file Form 67.

What is Foreign Tax Credit?

If you have paid taxes in one country, you can claim the same as tax credits in the country of your residence when both the countries have DTAA. There are two rules to it which are as follows:

  1. Source Rule: This rule holds that income is to be taxed in the country in which it arises irrespective of whether the income arises to a resident or non-resident.
  2. Residence Rule: This rule holds that the power to tax should rest with the country of residence.

If the both rules apply simultaneously to an assessee there will be double taxation. Double taxation means taxing the same income twice in the hands of assessee.

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CA Assisted Income Tax Return filing for Non-Resident Indian Individuals having taxable income in India.
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Concept of Foreign Tax Credit in India

Sections 90 and 91 of the Income-tax Act deals with the concept of Foreign Tax Credit. These sections allow Indian residents to claim a credit of foreign taxes paid by a taxpayer against their total tax liability in India.

  • Section 90 deals with claiming the foreign tax credit in a case where India enters into a double taxation avoidance agreement with another country. Provided the agreements mention claiming of such FTC
  • While Section 91 deals with claiming of FTC in scenarios where India has not entered into a double tax avoidance agreement with the country where the income arises for a taxpayer

Under these sections, if the taxpayer is a resident of India, and he has paid taxes outside India, he can claim a credit of such foreign taxes paid against his tax payable in India. Rule 128 was introduced to define certain rules and regulations regarding foreign tax credit to remove any ambiguities in this regard. Some of them are as follows:

  • Foreign tax credit can be claimed in the year in which the taxpayer’s income corresponding to such tax has been offered or assessed to tax in India;
  • FTC shall be available against the amount of tax, surcharge, and cess payable under the Indian tax laws. But not against any interest, fee, or penalty;
  • It shall not be available if the foreign tax is a disputed one;
  • It is available even on tax payable under Section 115JB (Minimum Alternate Tax);
  • FTC shall be the aggregate of the amounts of credit calculated separately for each source of income arising from a particular country;
  • FTC shall be lower of, tax payable on such income under the Indian tax laws and the foreign tax paid;
  • Foreign Tax Credit will be determined by the currency conversion during the foreign tax payment at the telegraphic transfer buying rate on the last day of the month, immediately preceding the month in which such tax has been paid or deducted.

Documents To Be Furnished For Claiming FTC

An assessee can claim Foreign Tax Credit in accordance with Rule 128, by furnishing the following documents on or before due date of filing of return:

  1. A statement of :
    • foreign income offered to tax
    • foreign tax deducted or paid on such income in Form No. 67
  2. Certificate or statement specifying the nature of income and the tax amount either paid by the taxpayer or deducted from their income :
    • From the tax authority of the foreign country
    • From the person responsible for the deduction of such tax
    • Signed by the taxpayer
  3. Proof of tax payment outside India.

What is Form 67?

An individual taxpayer shall furnish Form 67 in order to claim Foreign Tax Credit. It is also essential to file Form 67 on or before the due date of filing the income tax return u/s 139(1) i.e. the original return of income.

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Procedure to File Form 67

The Central Board of Direct Taxes (CBDT), vide notification no. 9/2017 dated 19 September 2017 provides the below mentioned procedure for filing Form 67:

  • Taxpayers who are required to file their returns electronically must prepare and submit Form 67 online
  • The taxpayer must be prepare and submit Form 67 either before or on the due date of filing the tax return
  • This form is available on the e-filing portal of the income tax department in the taxpayer’s account.
  • Digital Signature Certificate (DSC) or Electronic Verification Code (EVC) is mandatory to submit Form 67

Filling and submission of Form 67

Form 67 shall be available to all the taxpayers’ logins.

  1. Visit Income Tax Portal

    Login using valid credentials on Income Tax Portal.

  2. Navigate to E-file

    Select Income Tax Forms to prepare and submit online forms

  3. Select Form 67 and the AY from the drop down.

    Instruction to fill the form is enclosed along with Form

  4. Fill in all the required details

    Enter details of taxes paid outside India.

  5. You can submit the completed form 67 by clicking on the ‘submit’ button.

    You can also save the form filled as a draft so that you can make some changes later and then submit it.

FAQ

Where can I get Form 67?

Simply visit the official website of income tax department and select the Income Tax Form from E-File section. Search for the respective form in the search engine and then you will be able to download it.

What is a residence and source state?

Residence state is the home country of the taxpayer, while source state is a foreign country where the taxpayer is employed or receives income from.

Can anyone claim Foreign Tax Credit?

Only resident Indians can claim for the tax credits, as long as they have paid taxes in another country.

Is TRC mandatory?

Tax Residency Certificate helps establish which country you are a tax resident of in order to apply the relevant DTAA. And you can avail the benefits stated therein. India has made it mandatory to obtain TRC for a person who wants to avail any DTAA benefits of a treaty that India has entered into with another country.

DTAA between India and USA

In the case of a Non-Resident Indian (NRI), income earned outside India is not taxable. If a resident has income earned outside India, it is taxable in India and must be reported in ITR. In most cases, the foreign country also imposes a tax on such foreign income. To avoid the same income getting taxed in two different countries, the taxpayer can avail the benefit of DTAA. Double Taxation Avoidance Agreement is an agreement between two countries to avoid double taxation for the taxpayer. Under this article, we shall read more about the DTAA between India and the USA to avoid double taxation in India and USA.

Example

Rahul, a resident of India works in the USA and pays Federal Income Tax levied by the USA government. Since he is a resident in India, such foreign income would be taxable in India too. To avoid double taxation of the same income in two different countries, India has entered into DTAA with USA.

The government of both countries entered into a DTAA with the intention of providing either of the following:

  • Exemption of income earned outside India
  • Providing credit of tax paid on foreign income in the foreign country

Applicability of DTAA between India and USA

DTAA between India and USA is applicable to individual, trust, partnership firm, company or other entity having income in both countries. The DTAA covers the following taxes:

  • Federal Income Tax imposed by Internal Revenue Code in the USA i.e. the USA Income Tax.
  • Income Tax in India including surcharge and surtax.

Residential Status

For any taxpayer having source of income in two countries, it is important to determine residential status in each country.

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A resident is a person who as per the relevant law of each country is liable to pay tax because of residence, citizenship, domicile, place of management, place of incorporation, or similar criteria. If a taxpayer is a resident of both the countries i.e. India & USA, residence should be determined as follows:

  • The taxpayer would be a resident of the country in which a permanent home is available. If there is a permanent home at both places, taxpayer would be resident of the country in which their personal and economic relations are closer.
  • If the taxpayer does not have a permanent home in either of the countries, the taxpayer would be a resident of the country in which he/she has the habitual abode.
  • In case, the taxpayer has a habitual abode in both the countries or neither of them, the taxpayer would be a resident of the country in which he/she is a national.
  • If the taxpayer is a national in both the countries or neither of them, the competent authority of both countries would mutually decide the residential status.

DTAA between India and USA – Tax on Income

Income from Immovable Property

If a resident has earned income from immovable property, they should pay tax in the country in which such immovable property is located. Following are the types of income from immovable property:

  • Income from let out of immovable property
  • Agricultural or forestry income
  • Income from immovable property used to perform independent personal services
  • Income of an enterprise from immovable property

Dividend

If a resident company pays a dividend to a resident of another country, the dividend income is taxable in the country in which it is received.

For example: If a US company pays a dividend to a shareholder who is an Indian resident, such a dividend would be taxable in India.

However, the dividend may also be taxed in the paying country and if the taxpayer is a resident of receiving country, then the tax on the dividend cannot exceed the following:

  • 15% of the gross amount – If the dividend recipient is a company that owns at least 10% of the voting stock of the company paying the dividend
  • 25% of the gross amount – in any other case

For example: The dividend paid by an Indian company to a USA resident is taxable in the USA. If such dividend is received in India, it is taxable in India too. However, the tax on such dividends should not exceed the above-specified limits.

Interest

If interest income arises in a country and is paid to a resident of another country, it is taxable in the country in which the receiver is a resident.

For example: If a US resident earns interest income in India, it is taxable in the USA.

However, the interest may also be taxed in the country in which it arises and if the taxpayer is a resident of receiving country, then the tax on the dividend cannot exceed the following:

  • 10% of the gross amount – If the interest is paid on a loan granted by a bank or a financial institution.
  • 15% of the gross amount – in any other case.

For example: If such interest income is taxable in India also, then the tax in India should not exceed the above-mentioned limits.

Income of professors, teachers, and research scholars

The income of a professor, teacher or research scholar who moves to another country is exempt from tax if they fulfill the following conditions:

  • The engagement is for a period not exceeding two years, AND
  • Before the visit, the individual should be resident of the first country

For example: Shreya (resident in India) moves to the USA for an exchange program as a teacher in a recognized college. The income she earns in the USA would be exempt from tax up to 2 years.

DTAA between India and USA – Tax Relief

DTAA Relief in India

If a resident in India earns an income that is taxed in the USA, the taxpayer can claim a deduction of an amount equal to income tax paid in the USA. However, such deduction should not exceed income tax in India on such foreign income. Thus, the resident earning foreign income can claim relief of the tax paid on foreign income.

DTAA Relief in USA

Resident in USA can claim credit against the USA tax for the amount of:

  • Income tax paid to India by or on behalf of such resident
  • Income tax received by the Indian Government from the Indian Company on dividend paid to USA Company that holds at least 10% of the voting stock of the Indian Company

DTAA between India and USA – Reporting in ITR

Non-Resident in India need to report and pay tax on any income earned outside India i.e. foreign income.

Resident in India earning a foreign income should report such income and foreign assets in the Income Tax Return.

Schedule FSI (Foreign Source of Income)

The taxpayer should add details of foreign income i.e. income earned outside India. Enter the following details:

  • Country Code – Select the country in which income is earned
  • Taxpayer Identification Number
  • Income outside India – enter the amount of income earned outside India
  • Taxes paid outside India – tax paid on income earned outside India
  • Tax payable in India – tax payable in India on income earned outside India
  • Tax Relief available = tax paid outside India or tax payable in India whichever is lower
  • Relevant DTAA Article – enter details of the relevant article of DTAA under which the taxpayer claims the tax relief

Schedule TR (Tax Relief)

Once the taxpayer adds details of Foreign Income in Schedule FSI, the details in Schedule TR (Tax Relief) get populated. The double taxation relief is reduced from the tax calculation.

Schedule FA (Foreign Assets)

If the taxpayer holds any foreign assets outside India, they must report it under Schedule FA i.e. Foreign Assets.

Form 67

To claim the foreign tax credit, the taxpayer should file Form 67 online on the income tax website before filing the Income Tax Return. Form 67 comprises details of foreign income and tax relief on such income.

FAQs

I am an Indian working in USA. Should I pay tax on such income in India?

You should first determine your residential status as per the Income Tax Act. If you hold the status of a Non-Resident, income earned outside India is not taxable in India. However, if you are a resident in the financial year, you must report such foreign income in the ITR in India. As per the DTAA agreement between India and the USA, the same income is not taxable in both countries. Thus, if you have paid tax on such income in USA, you can claim the credit of such tax paid by filing Form 67. Tax relief is lower of tax paid in USA or tax payable in India and can be reduced from total tax liability in India.

Tax on sale of property by NRI in India

Tax and regulations relating to the selling of house property in India are different for NRIs from that of an Indian resident. Sale of property by NRI is a transaction which attracts tax on the Capital Gains, tax deduction at source and other rules.

Tax on Capital Gains from Sale of Property by NRI

NRIs have to pay taxes on the capital gains made from selling house property. Tax to be paid depends upon the holding period of the property. If they sell their property within two years of its date of purchase, short-term rates are applicable. However, if they sell it after two years, long-Term Capital Gains taxes become applicable. 

The short term rate is as per the applicable income tax slab rate of the NRI based on his taxable income in India. However, Long term gains are taxable at the rate of 20%.

If an NRI has inherited property, the cost and date of its purchase of property for the previous owner becomes the basis for the calculation of capital gains taxes for NRI.
Tip
If an NRI has inherited property, the cost and date of its purchase of property for the previous owner becomes the basis for the calculation of capital gains taxes for NRI.

Example

Suppose, Mr Y bought a property for INR 1 crore in 2010-11 which was later sold in 2019-20 for INR 2 crore. Capital gain will be calculated as follows:

Particulars Amount
Take full value of Consideration 3,00,00,000
Less:​

Index* Cost of Acquisition.
Index* Cost of Improvement.


(1,73,00,000)
​(0)
Less: exemption under section 54, 54EC, 54F, 54B (0)
Long Term Capital Gain 1,27,00,000

Since, Mr Y had held the property for more than 2 years, we will consider it as a long term asset. Also, he needs to adjust the cost of purchase using indexation to adjust inflation effect. The inflation-adjusted cost of the property is calculated by using below formula:

Cost of acquisition x (Cost Inflation Index in the year of sale / Cost Inflation Index in the year of acquisition)

*In this case, it is INR 1 crore​​*Index Cost of Acquisition is INR 1 crore​​*(289/167) which works out to about INR 1.73 crore

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TDS on Sale of Property

Any individual/HUF buying an immovable property worth INR 50 lakhs or more needs to deduct TDS. If seller is a resident, TDS is applicable as per section 194IA of the Income Tax Act i.e at the rate of 1% from the sale consideration paid to resident seller. However in case seller is a non-resident, then, the TDS rates of 30 per cent become applicable. But if the property is sold after two years, LTCG TDS rates at the rate of 20% become applicable.

Moreover, there is applicability of surcharge as well as education & health cess that varies based on the gains from the property. 

Surcharge Slab if taxable income

Rate

INR 50,00,000 to INR 1,00,00,000

10%

Above INR 1,00,00,000

15%

Health & Education Cess

4% on total of income tax+surcharge

So we can conclude that following are effective rates of TDS in case of Long Term Capital Gains (LTCG) on property sold by NRI Individual/HUF :

Particulars LTCG is less than INR 50 Lakhs LTC Gain is from INR 50 Lakhs to INR 1 Cr LTCG is more than INR 1 Cr
Capital Gain Tax Rate 20% 20 % 20%
Add: Surcharge NIL 10% of the above tax rate 15% of the above tax rate
Total Tax Rate 20% 22% 23%
Add: Health & Education Cess (w.e.f. 01/04/2018) 4% of the total tax rate 4 % of the total tax rate 4% of the total tax rate

Effective TDS Rate 20.8% 22.88% 23.92%

In similar manner, effective rates of TDS in case of STCG on property can be calculated at 30%

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Tax Saving on Capital Gains from Sale of Property by NRI

The Income Tax Act has defined the particular sections under which exemptions can be claimed on capital gains earned. The intention of the exemption is to allow the taxpayer to invest in a new capital asset within a specified time limit without any tax burden.

The NRI must make these investments and show relevant proofs to the Buyer – to make sure TDS is not deducted on the capital gains.

NRIs are allowed to claim capital gains exemptions under the below-mentioned sections of LTCG from sale of house property in India.

Section Description Applicability Deduction Amount
Section 54 Sale of House Property (LTCA) by Individual/HUF Purchase/Construction of New House Property. Lower of
Cost of New House Property
OR
Capital Gains
Purchased 1 year before or 2 years after the sale of a property.
Constructed within 3 years from the sale of a property.
Section 54EC Sale of Land or Building or both (LTCA) by any taxpayer Investment in NHAI/REC Bonds.  Lower of
Cost of Investment 
OR
Capital Gains
An investment made within 6 months from the sale of an asset. 
The investment amount can not be more than INR 50 lakhs. 
Section 54E, 54EA, 54EB Sale of any LTCA by any taxpayer Investment in Specified Securities.  Cost of new asset * Capital Gains / Net Consideration
Specified securities include Government Securities, Savings Certificates, Units of UTI,  Specified Debentures, etc. 
An investment made within 6 months from the sale of an asset. 
54EE Sale of any LTCA by any taxpayer Investment in units of a specified fund. The investment amount can not be more than INR 50 lakhs.  Cost of new asset * Capital Gains / Net Consideration
Specified fund include units notified by the central government 
An investment made within 6 months from the sale of an asset.

 

Double Taxation on Income Earned by NRIs

When a person is residing in one country and earning income in some other country he might need to pay taxes in both the countries.
However, some countries provide partial or total exemption on income earned from other countries. It totally depends upon the agreement between two countries which is called DTAA (Double Taxation Avoidance Agreement). So, it is important to be aware of incumbent rules in country of residence and whether it has a tax avoidance agreement with India. 

For example, Mr. Arjun is an Indian residing in the UK. He is an NRI and has earned LTCG in India on sale of property. Now, this Income can be taxable in both India and the UK. But because of DTAA, Mr. Arjun will not be taxed in both countries for the same income.

However, if Arjun does not pay any taxes in India because of reinvesting capital gains (using above-mentioned options), he will be liable to pay the taxes in the UK.

FAQS

Can NRIs sell their agricultural land?

NRIs cannot sell their agricultural land, plantation property or farmhouse to another NRI or Person of Indian Origin (PIO). However, residential or commercial property can be sold to a person residing in India, another NRI or a PIO. 

How can NRI receive sales proceeds?

NRIs will receive the sales proceeds, net of TDS. 
The sales proceeds can be received only in an FCNR or NRE/NRO bank account.

What are the documents required as proof of investment while claiming exemption?

While filing ITR, taxpayer only needs to enter the exemption section, required details of purchased asset and amount of exemption claimed. However, it is important to keep the purchased assets documents on record for future use.

DTAA – Double Taxation Avoidance Agreement : Definition, Types, and Benefits

For NRIs who are working in other countries, the DTAA (Double Taxation Avoidance Agreement) helps to avoid paying double taxes on income earned in both their country of residence and India. Its key objective is that tax-payers in these countries can avoid taxation for the same income twice. India has 85 active agreements. The basic objective of DTAA is to promote and foster economic trade and investment between two Countries by avoiding double taxation. You can check the DTAA entered into by India with other countries from the income tax department’s website through this link Notification of Government.

What is DTAA?

DTAA means a Tax Treaty between two or more countries to avoid taxing the same income twice. When a person is residing in one country and earning income in some other country they are covered under DTAA. This means that involved countries have agreed upon tax rates and jurisdictions for income arising from their country.

For example, Mr. Arjun is an Indian residing in the UK. He has made investments in India on which he earns returns. Now, this Income can be taxable in both India and the UK. But because of DTAA, Mr. Arjun will not be taxed in both countries for the same income.

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Types of DTAA

Relief from Double Taxation can be provided in two ways:

  • Bilateral Treaties: When there is an agreement of DTAA between the Two countries relief is calculated according to mutual agreement between such two countries. Bilateral relief can be granted by either of the following methods:
    • Exemption method: Under this method, income is taxed in only one country
    • Tax credit:  Income is taxed in both countries. Relief is granted in the country in which the taxpayer is the resident.
  • Unilateral Relief: The home nation provides relief when there is no mutual agreement between the countries 

Nature of DTAA

  • Comprehensive: Comprehensive DTAA’s are those which cover almost all types of incomes covered by any model convention. Many a time a treaty covers wealth tax, gift tax, surtax. Etc. too.
  • Limited: Limited DTAA’s are those which are limited to certain types of incomes only.

Advantages of DTAA

  • The intent behind a Double Tax Avoidance Agreement is to make a country appear as an attractive investment destination by providing relief on dual taxation.
  • This relief is provided by exempting income earned in a foreign country from tax in the resident nation or offering credit to the extent taxes have been paid abroad.
  • Reducing the possibility of tax evasion in both or either of the signatory countries
  • Tax rate concessions
  • Lower Withholding Tax: Lower withholding tax is a plus for taxpayers as they can pay lower TDS on their interest, royalty, or dividend incomes in India.

Treatment of Double Taxation Avoidance Agreement

There are two ways of implementing DTAA:

  1. By either exempting the income earned abroad in its entirety
  2. By providing credit to the extent of tax already paid in the other country

Continuing the example, as Mr. Arjun is covered under DTAA. And the agreement states that the UK will exempt his entire income earned on investments made in India then he has to pay taxes only in India and not the UK. Only one particular country will charge his income.

Now, let’s say that the agreement states that India and the UK both will charge taxes on that income. In that case, Mr. Arjun will get a credit of the taxes paid by him in the UK which will be deducted while paying taxes in India. So he will end up paying taxes in both countries but at lowered rates.

The Governments of different countries enter into Double Taxation Avoidance Agreements to provide reliefs to the tax-payers and encourage more investments.

How can NRI claim benefit of DTAA?

Non resident Indians residing in any of the DTAA countries can avail of tax benefits provided under DTAA by timely submission of the following documents every financial year within the due dates:

  • TRC (Tax Residency Certificate): You need to submit TRC to claim benefits under DTAA. To obtain a TRC, you can approach the tax/government authorities of your current residence country, where you would get TRC certified, upon downloading form 10F.
  • Form 10F: You need to submit form 10F to avail benefits under DTAA.
  • PAN number: You also need to submit your PAN (Permanent Account Number) along with the above documents to get tax benefits.
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How to apply for DTAA?

The process of application of DTAA involves a series of steps, involving the different types of provisions.

  • Determine whether the issue is within the scope of the convention.
  • Check that the treaty applies to the tax in issue – is it a tax listed in Article 2 (or a tax substantially similar to such a tax).
  • Thirdly, check that the treaty is in force for the taxable period in issue.

How is Double Taxation Avoidance Agreement relief calculated?

In case there is DTAA with the Country, then Tax Relief can be claimed u/s 90. Steps to compute Double Taxation relief:

  1. Calculate Global Income i.e. aggregate of Indian income and Foreign income;
  2. Compute tax on such global income as per the slab rates applicable;
  3. Calculate the average rate of tax (i.e. Global income divided by the amount of tax);
  4. Compute an amount by multiplying Foreign income with such average rate of tax;
  5. Compute Tax paid in Foreign country

The amount of relief shall be lower of (4) and (5).

In case there is No DTAA, then Tax Relief can be claimed u/s 91. Steps to compute relief:

  1. Compute tax payable in India
  2. Compute lower of Indian rate of tax and rate of tax in Foreign country
  3. Multiply the rate obtained in Step 3 by the doubly taxed income.

Relief will be the amount as computed in Step 3.

List of countries that have DTAA with India

India has signed a Double Tax Avoidance Agreement with most major nations where Indians reside. Following is the list of some of the major countries:

Country DTAA TDS rate
United States of America 15%
United Kingdom 15%
Canada 15%
Australia 15%
Germany 10%
South Africa 10%
New Zealand 10%
Singapore 15%
Mauritius 7.5% to 10%
Malaysia 10%
UAE 12.5%
Qatar 10%
Oman 10%
Thailand 25%
Sri Lanka 10%
Russia 10%
Kenya 10%

FAQ

Who is covered under DTAA?

Individuals who are residing in one country and earning any income from another country are covered under the Double Taxation Avoidance Agreement (DTAA).

How do I take DTAA benefits?

Individuals who are NRIs are covered under DTAA. They are required to submit their “Tax Residency Certificate (TRC)” to the deductor (Bank) along with Form-10F & PAN No.

How many countries have DTAA with India?

India has Double Taxation Avoidance Agreements (DTAA) with a total of 88 countries out of which 86 are presently in force.

What are the details should contains in TRC?

TRC should contain the following details:
– Name of the assessee.
– Status of the assessee (Individual, Firm, Company Etc.)
– Nationality
– Country
– Assessee Tax Identification or Unique Identification number of the relevant Country
– Residential status for the purpose of tax
– Validity Period of the certificate
– Address of the applicant

Income Tax for NRI and Foreign Income

Definition of NRI

Income Tax for NRI will depend upon his Residential Status for the year. It is important to determine the residential status of an individual before determining their taxability. The criteria to determine your residential status is as follows:

You are an Indian resident for a particular financial year:

  1. If you are in India for at least 182 days (6 months) during the financial year or
  2. You lived in India for at least 60 days (2 months) during the previous year and have lived for at least 365 days (a year) during the last four years.

However, only the first condition is applicable if you are an Indian Citizen working abroad or a member of a crew working on an Indian ship. So if you spend at least 182 days in India during the financial year, you are a resident India.

A person shall be deemed to be of Indian origin if he, or either of his parents or any of his grandparents, were born in undivided India.

However if you do not meet any of the above conditions, then you are an NRI.

The residential status will help us determine the taxability of the income.

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If your status for the previous year is “Resident“, your global income will be taxable in India. If your status is “NRI“, only the income which is earned or accrued in India will be taxable in India. Some of the examples of Incomes earned or accrued in India are Salary received in India, professional fees received in India, rent Income from House Property in India, capital gains on transfer of assets situated in India, interest income on fixed deposits or savings bank account in India, etc.

All these incomes are taxable in India for an NRI. So any income which is earned by an NRI outside India will not be taxable in India, for an eg. his Salary Income abroad or interest earned on NRE account or deposits abroad, etc.

Please note that interest income on the NRE account is completely tax-free whereas interest earned on NRO account will be applicable to TDS at the rate of 30.9%.

Taxable Incomes for NRI Include

Salary: As discussed earlier, any income which is earned or accrued in India will be taxable in India. So if the salary is earned or received in India by an NRI or by someone else on behalf of the NRI then it will be taxable in India. This salary income will be taxable at the slab rates applicable to individuals.

For Eg. Ravish is an employee of an Indian company and he has been deputed to Dubai to look after the company’s work there. He has been working in Dubai for the past two years. During his deputation in Dubai, Ravish’s salary was deposited to his designated bank account in India. Since his salary is received in India, it will be taxable in India.

Salary received by the diplomats and ambassadors is completely exempt

House Property Income: If an NRI owns a property which is situated in India, then any income from such property will be taxable in India.

The income from such house property will be calculated as if it is calculated normally in case of a resident Indian. The NRI will be allowed all the deduction including the standard deduction of 30% and the deductions for the interest and principal repayment in case a home loan is taken. This income will be taxed at the slab rates.

It is important to note that the rental income received by an NRI is applicable to 30.9% TDS. So when a tenant pays rent to the owner of the property who is NRI, he has to deduct TDS @ 30.9% from such rent.

Income from Business and Profession: Any Income from a Business that is set up in India or controlled from India is taxable in the hands of the NRI.

Income from Other Sources: Any income earned by NRI by way of interest on any deposits or balance in the savings bank account will be taxable in India. It is to be noted that the interest income on the NRE account and the FCNR account are completely exempt in the hands of the NRI however the interest earned on the NRO account is applicable to TDS @ 30.9%.

Income from Capital Gains: Any Capital Gains from the transfer of a capital asset situated in India is taxable in India. Even if an NRI invests in shares and securities India then capital gains on the transfer of such shares and securities will also be taxable in India.

Any NRI can claim exemptions available under section 54 & 54EC, from the capital gains arising on sale of residential house property.

Deductions and Exemptions for NRI

Here is a summary of deductions and exemptions which are / not allowable for NRI:

Deductions/ Exemptions Allowable Not allowable
Section 80C Life Insurance Premium Payment Investment in PPF
Children’s Tuition Fee Payment Investment in NSCs
Principal Repayment on Loan for purchase of House Property Post Office 5 year Deposit Scheme
Investment in ELSS Senior Citizen Saving Scheme
Investment in Unit Link Insurance Plan  
Section 80CCG Investment under RGESS
Section 80D Premium Paid for Health Insurance
Section 80DD Expenditure on Maintenance including medical treatment of a handicap dependent
Section 80DDB Expenditure towards medical treatment of a differently abled dependent
80E Interest paid on education loan
80G Donations for charity (social) causes
80TTA Interest income from savings bank account
80U Deduction available to differently abled individuals
80U Deduction available to differently abled individuals
Deductions from House Property Income Standard deduction
Property taxes paid
Interest paid on home loan
Exemption on sale of Long term property Section 54: On sale of long term house property
Section 54F: On sale of any long term asset other than house property
Section 54EC: On sale of any property and reinvestment in bonds of National Highway Authority of India (NHAI) and Rural Electrification Corporation (REC)

How to Avoid Double Taxation?

One of the most common questions amongst NRI is that “Do I have to pay taxes in both the countries i.e country of resident and India?”

The NRI can save themselves from double taxation by availing the relief from the Double Taxation Avoidance Agreement (DTAA) which is an agreement between India and foreign countries.

Different agreements with different countries may vary in terms of tax relief. But broadly, the benefit is provided in two ways:

  • Exemption from double taxation: When the agreement provides for the exemption, the NRI will be taxed in only one country and they will not have to pay any taxes in the other country. Say Manali is a non-resident Indian and she is working in the US as a Certified Accountant. She earns some interest income from fixed deposits in India. Now if India and the USA have entered into an agreement and have provided the exemption, Manali’s interest income will be taxed only in India and the same income shall be exempt from tax in the USA.
  • Tax Credit (Relief): When the agreement provides for relief, the incomes will be taxed in both the countries, however, tax relief will be allowed to the NRI in the country of their residence. Say Paritosh is a non-resident Indian and is working as a content writer for a newspaper company in Australia. He has rental income from his residential flat in India. If India and Australia have entered into an agreement and have provided relief from the double taxation by way of the tax credit, the rental income will be taxed both in India and Australia. However, Paritosh will be allowed to take the tax credit in Australia for the taxes which he has paid in India.

Changes for NRIs According to the Budget 2020

The budget 2020 announced by the Finance Minister Nirmala Sitharaman on the 1st of February had the following major changes for the Non-Resident Indians (NRIs):

Criteria for Determining Residential Status

The Primary condition of 182 days for determining Residential Status has been changed to 120 days in the Union Budget 2020. Hence, an Indian National will be deemed a resident of India if they have stayed in India for at least 120 days in a Financial Year.

Resident – Not Ordinary Resident

Previously, an individual had to be a resident for 2 out of the 10 previous years and had to be staying in India for up to 729 days in order to be deemed as an R-NOR. After the announcement made in the Budget 2020, the requirement for being a resident was increased to 4 out of the previous 10 years.

Section VI (IA) – New Clause

The new clause announced by the Finance Minister states that, if an individual is not a resident of any other country, then he/she will be deemed a resident of India by default. Furthermore, once the person is deemed a citizen of India, he/she becomes liable to disclose all their assets and finances they possess. These finances and assets can be either from India or from any foreign country.

Dividend Distribution Tax – DDT

According to the current tax regime, the DDT is deducted by the companies on the dividend paid to its shareholders. However, under the new tax regime, the dividend is no longer taxable at the hands of the shareholders. Therefore, the companies will deduct the TDS on the dividend distributed. Furthermore, TDS will be deducted u/s 195 in the case of NRI shareholders and dividend income will be taxed at slab rates.

Source of Income Resident Not Ordinary Resident None-Residents
Income earned in India Taxable in India Taxable in India Taxable in India
Any income received in India Taxable in India Taxable in India Taxable in India
Income earned outside India but received in India Taxable in India Taxable in India Taxable in India
Income earned and received outside India Taxable in India Taxable in India Not Taxable in India
Any income earned outside India for a business or profession controlled in or from India Taxable in India Taxable in India Not Taxable in India
Income earned outside India from any source other than business or profession controlled from India Taxable in India Not Taxable in India Not Taxable in India

 

FAQs

What are the Incomes taxable in India?

For NRIs, the incomes which are earned in India will be taxable in India. For Indian Residents, global incomes i.e incomes earned in India and also the foreign incomes will be taxable in India.

Do I have to pay tax on my foreign income, in India?

If you are an NRI then you are not required to pay taxes on your foreign income. You will have to pay taxes on the income which you have earned in India. On the other hand, if you are an Indian Resident than all your Global incomes will be taxed in India. However, if you have paid taxes on such foreign incomes in the same country, then you can claim the relief as per the Double Taxation Avoidance Agreements (DTAA)

Do I have to declare my foreign assets and incomes in India?

For NRIs, one does not need to declare foreign assets and foreign incomes in Indian Income Tax Return except the incomes which are earned or received in India as they would be liable to Indian Income Tax.
For Indian Residents, one needs to declare all the foreign assets and foreign incomes. The foreign incomes will be subject to Indian Income Tax (subject to Double Taxation Avoidance Agreement) as for a Resident Indian, global incomes are subjected to Indian Income Tax.

Is there any tax relief available to NRIs?

If any of the Incomes earned by NRI is taxable in India and the same income suffers from another tax levy in the country of residence of NRI, individual will be allowed to take the benefit of DTAA (Double Taxation Avoidance Agreement) so as to save the income from suffering double taxation. 
However, if no income of NRI is subject to the tax levy, the need to claim relief does not arise.

How to pay tax in India if I don’t have a NetBanking account in India?

For filing Income Tax Return (ITR), you need to have an Active Bank Account with any of the Indian Banks. Hence, for payment of Income Tax or claiming Income Tax Refund, you are required to have a bank account in India. However, for payment of Income Tax, anybody (if not you) can pay the tax on your behalf from his/her bank account. So NRIs can pay tax through any of their friends or family members who have an active Bank account in India.

I am an NRI. Do I have to file an Income Tax return in India?

​Whether you are an NRI or not, if your income exceeds Rs. 2,50,000 then you are required to file an Income Tax Return in India. On the other hand, even if your income is less than Rs. 2,50,000, you will have to file a return if:
​1. You want to claim a refund &/or
​2. You have a loss that you want to carry forward

What is the last date for filing the Income Tax Return for the NRI?

31st July is the last date to file the Income Tax Returns in India for the NRI

I am an NRI. Do I have to pay Advance Tax?

Whether you are an NRI or not, if your total tax liability exceeds Rs. 10,000 in a financial year, you are required to pay the Advance Tax. Interest under section 234B and 234C will have to be paid in case of failure to pay the Advance Tax.