Withholding Tax in India

Any payer deducting an amount directly from its payee’s earning is referred to as Withholding tax. By law, the payer is obliged to deduct the amount at the time of making the payment on account of a Non-Resident Individual. Let’s learn about withholding taxes in further detail.

What is Withholding tax

Withholding tax is similar to Tax Deducted at Source (TDS). Withholding tax also known as retention tax is another terminology used for TDS. It is deducted by the payer directly from its payee’s earning. This tax is then deposited as part of the Non- resident individual’s tax liability to the Central government of India. The central government of India is an official body to levy and collect taxes.

For better understanding, TDS has to be paid by Residents, and withholding tax is to be paid by Non-resident individuals only on income earned in India.

Example: Mr. Rohan is an NRI and is working as a freelancer with Mr. Shah & Co. in India. Mr. Rohan has earned INR 95000 by providing his services. Now, while making the payment Mr. Shah & Co. will credit INR 90000 to Mr. Rohan’s account and deduct INR 5000 as withholding tax.

Rates of Withholding tax in India

Following are the rates applicable for Non- Resident Indian individuals:

  • 20% Interest rate is applicable for dividends paid by domestic companies
  • 10% rate is applicable for technical services are charged
  • 10% rate is applicable for other services
  • Individuals are charged 30% rate of the Income
  • Companies are charged 40% rate of the Income
  • No tax charged for royalties

Note: The above stated rates are applicable on those countries with whom India does not have a double taxation avoidance agreement.

Process of doing an assessment for Non-resident Indians

Assessment of Non- Resident Indians can be done by an agent or even directly. A person who is considered as ‘agent‘ of a non-resident assessee is as under:

  • Employee or trustee of a Non-resident Indian
  • Any individual who has any business connection with a Non-resident
  • Any person through whom a Non-resident is receiving any income
  • Any person who has acquired or purchased any capital asset in India from a Non-resident.

Due date of Filing returns

The returns for withholding of tax are filed quarterly, and it includes details about every payee and amount deducted for that particular quarter.

Following are the dates of filing the returns for every quarter:

Quarter Months Due Dates
Q1 April – June July 15th, 2021
Q2 July – September October 15th, 2021
Q3 October – December January 15th, 2021
Q4 January – March  May 15th, 2021

Due date of depositing payment

Following are the due dates of making payments of withholding tax:

Month End of Quarter Withholding Tax Payments Due Date – Government  Withholding Tax Payments Due Date – Non- Government 
January 31st March 7th February 7th February
February 31st March 7th March 7th March
March 31st March 7th April 30th April
April 30th June 7th May 7th May
May 30th June 7th June 7th June
June 30th June 7th July 7th July
July 30th September 7th August 7th August
August 30th September 7th September  7th September 
September 30th September 7th October 7th October
October 31st December 7th November 7th November
November 31st December 7th December 7th December
December 31st December 7th January 7th January

FAQs

What is the difference between TDS and withholding tax?

TDS is applicable while making payments to Indian Citizens while Withholding tax is applicable while making payments to foreign individuals.

What is the rate of withholding tax in India?

Following are the rates applicable for Non- Resident Indian individuals:
1. 20% Interest rate is applicable for dividends paid by domestic companies
2. 10% rate is applicable for technical services are charged
3. 10% rate is applicable for other services
4. Individuals are charged a 30% rate of the Income
5. Companies are charged 40% rat of the Income
6 . No tax charged for royalties

When should I make payment for withholding tax?

Withholding tax payment has to be done on the 7th of every month. While returns are to be filed within 30 days from the ending of every quarter.

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.
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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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

H&R Block customers : Welcome to Quicko

H&R Block is a global online tax filing platform. It started its first Global Technology Center in India in October 2017. They had served the Indian market with various services, some of which have been mentioned below:

  • DIY Tax Filing
  • CA Assisted Tax Filing
  • Informative Youtube videos & Articles

Although they have been involved in the Indian market for a couple of years now, they have decided to discontinue their services to the Indian taxpayers.

If you are an existing customer of H&R Block, you don’t need to worry about your tax preparation for the upcoming Financial Year. You can take the help of Quicko.

Given below are the services that are offered by us at Quicko:

Our DIY – Do It Yourself ITR filing allows you to simply upload your Form 16 on our platform and file your ITR within few minutes. You can also get our CA assistance on the same.

Ask an Expert (Income Tax)
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Our DIY- Do It Yourself TDS filing allows you to fill TDS Return required details like your TAN and PAN and employee’s details on our platform and file TDS Return within few minutes. You can also get our CA assistance on the same.

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Our DIY- Do It Yourself GST filing allows you to generate invoices, built purchase orders, keep records, view reports, etc on our platform and file your GSTR within few minutes. You can also get our CA assistance on the same.

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Taxpayers can avail all these services with our CA assistance. Following are some of the CA assisted plans:

Individuals, in order to file their ITR, have to own a PAN. Therefore without PAN one cannot file their ITR. Even NRIs are required to have their PAN. You can apply for PAN with the help of Quicko and get our CA Assistance on the same.

New PAN Application for Residents
Expert Assisted New PAN (Permanent Account Number) Application for Resident Individuals.
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Expert Assisted New PAN (Permanent Account Number) Application for Resident Individuals.
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Proprietorship businesses and Entrepreneurs who wish to get the status of a company have to register their businesses with the Ministry of Corporate Affairs (MCA). You can apply to register your business with Quicko and get CS Assistance on the same.

Private Limited Company (PLC) Registration
CS Assisted incorporation of Private Limited Company (PLC) in India.
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You can now do Error-free bulk PAN verification with Quicko and get CA Assistance on the same.

  • APIs
    • Provision of GST APIs
      • Simple, RESTFul APIs to verify GSTIN details, create e-invoice, upload GSTR & reconcile ITC.
    • Provision of PAN APIs
      • The easiest way to verify PAN online by using Self-Served REST APIs. Provides seamless customer KYC and error-free payroll.

Apart from that, we also believe in high engagement with customers, being up to date with the trends and providing them with higher customer satisfaction.

Hence, the following are some initiatives taken by us:

We at Quicko are on a mission to simplify taxes for all.

TRACES : Activate NRI Taxpayer Account

Once the taxpayer registration process is complete, the user receives a success message. This message is shown after the internal validations in the form are complete. On successful registration, the user receives the activation link and code on the registered e-Mail address within 48 hours. The users can use this link to activate their account on the TRACES portal. In case the validation process fails, the information is sent to the user’s registered e-Mail address within 48 hours.

Furthermore, if the user does not activate the link within 48 hours of receipt of mail, the user account in the TDS CPC would be deactivated. Additionally, all data entered by the user during registration will be removed from the system.

Steps to Activate the TRACES Account

  1. Access the message sent to you on your mail.

    It will include the “Activation Link to Activate Account” and the “Activation Code.”

  2. Navigate to the activation page and fill in the details

    Therefore, click on the “Activation Link to Activate Account” link to move to the activation page. Hence, enter the User ID and the Code sent through the mail in the respective fields.

  3. Activate your account

    Enter the captcha code shown in the image and click on the “Submit” option. Therefore, after the completion of the above steps, the account is activated and the following message will be shown.

In case the details entered in the “Account Activation” page are incorrect, the user would receive the following message.

FAQs

What do I do if I have forgotten my username?

The username to the TRACES NRI Taxpayer account is the same as the PAN number of the account holder.

I cannot access the www.nriservices.tdscpc.gov.in portal in India. What do I do?

The https://nriservices.tdscpc.gov.in/ can only be accessed from outside of India and not in India. Visit the www.tdscpc.gov.in link and log into your account using your credentials.

TRACES : NRI Taxpayer Registration

The Non-Resident Indian – NRI taxpayer can complete their registration process on to the TDS Reconciliation Analysis And Correction Enabling System (TRACES) portal, however, the link to access the TRACES portal for the NRI Taxpayers is different from that of the normal taxpayers. The NRI Taxpayers can perform the following activities through the portal:

  1. Registration
  2. View or Download Form 26AS
  3. Download / Correction Form 16B
  4. Manage profile
  5. Change password
The NRI Taxpayers have to access the www.nriservices.tdscpc.gov.in portal from outside India. Likewise, the NRI taxpayers need to visit the www.tdscpc.gov.in portal in order to access the TRACES portal from within India
Tip
The NRI Taxpayers have to access the www.nriservices.tdscpc.gov.in portal from outside India. Likewise, the NRI taxpayers need to visit the www.tdscpc.gov.in portal in order to access the TRACES portal from within India

Steps to Complete NRI Taxpayer Registration process on TRACES

Time needed: 5 minutes.

  1. Visit the TRACES portal

    Visit the NRI Taxpayer TRACES page to register yourself as a user. (www.nriservices.tdscpc.gov.in).

  2. Register as New User

    Thereafter, click on the “Register as New User” option.

  3. Select Taxpayer option

    Select the “Taxpayer” option from the drop-down list and click on the “Proceed” option.

  4. Enter the required details

    Fill in these details in the respective fields:
    1. PAN number
    2. Date of Birth/Date of Incorporation
    3. Surname
    4. First Name
    5. Middle Name

  5. Hence, moving forward, enter details in either option 1 or option 2.
    In Case of Option 1 – Details of TDS Deducted/Collected

    Hence, enter the following details in their respective fields:
    1. TAN of Deductor
    2. Type of Deduction
    3. Month-Year
    4. TDS/TCS Amount (Amount should be entered in two decimal places such as 123.45)

  6. In case of Option 2- Challan detail of tax deposited by taxpayer

    Therefore, enter the following details in the respective fields:
    1. Assessment Year
    2. Challan Serial Number
    3. Amount (It should be entered in two decimal places such as 123.45)

  7. Enter the Captcha code

    Hence, enter the captcha code from the image given and click on the “Proceed” option.

  8. Enter the following details in the Address and Communication Details section:

    1. Flat/Door/Block Number
    2. Town/City/District
    3. State/Union Territory
    4. Country
    5. PIN Code
    6. Country Code – Mobile Number
    7. e-Mail ID

  9. Enter the following login details to complete the registration:

    1. Password
    2. Confirm Password
    3. Security Question
    4. Answer
    The user ID of the taxpayer account is the same as their PAN number.

  10. Click on the “Create Account” option to move forward.

    Hence, we move to a confirmation page. Verify the details and click on the “Confirm” option to move forward or “Edit” option in case you would like to make some changes to the details filled in.

Thus, an activation link is sent to the registered e-Mail ID and mobile number. Click on the activation link received to complete the registration process.

Additionally, a success message will be shown to the users after the successful completion of the registration process.

FAQs

What are the activities that an NRI Taxpayer can perform through the TRACES portal?

The following activities can be performed by the NRI Taxpayer:
1. Registration and Login
2. Request and Download Form 26AS
3. View and edit profile
4. Request and Download Form 16B (Buyer)
5. Change Password
6. Request and Download JR
7. Form 26QB Correction

How can the NRI Taxpayers activate their TRACES account after registration?

Once validation will be approved by TRACES (internally), e-mail for activation of account along with activation code will be sent to the user. To activate an account in TRACES, users have to click on the activation link sent to registered e-Mail ID and submit the activation code within 48 hours.

How do I register as a taxpayer on the TRACES website?

The following are the key steps for registration on TRACES:

1. Go to the TRACES website and click on the “Register as new” link to access the option to register as Deductor, Tax Payer or PAO
2. Enter the details such as PAN, Date of Incorporation/D.o.B and the Surname of the user in the respective fields

Thus, you will have to choose one out of the three options given to you to enter your information:

1. Details of TDS deducted/collected
2. Challan details of tax deposited by a taxpayer
3. Details of 26QB statement details filed by the buyer before a correction 

Hence, by moving forward with one of the 3 options given above, you will be able to complete the registration process.

TRACES : Update Profile Information Of NRI Taxpayers Account

The users can update certain parts of the profile information of their account on the TRACES portal. They can update the communication details and the login details of their accounts. Additionally, they can also change the password of their TRACES account. However, they cannot change the taxpayer details which consists of the information of their PAN number, Date of Birth (D.o.B), surname, and their first and middle name. Given below are the steps to update the Taxpayer information on the TRACES account.

Steps to Update Profile Information of NRI Taxpayer Account on TRACES

Time needed: 5 minutes.

  1. Visit the TRACES portal

    Visit the TRACES Portal and log into your Account. Therefore, click on the “Profile” option from the dashboard

  2. Click on the “Communication Details” option. Hence, you can update the information in the following fields:

    1. Flat/Door/Block number
    2. Town/City/District
    3. State/Union Territory
    4. Country
    5. PIN Code
    6. Mobile Number
    7. e-Mail ID
    Moreover, once the above fields have been updated, click on the “Save” option.

  3. Click on the Login Details.

    Thus, click on the “Login Details” option. Here, you can improve the security of your account by setting up a security question in case you have forgotten your password. Therefore, select a security question from the drop-down list. Hence, enter an answer to the security question you have chosen and click on the “Save” option.

FAQs

As an NRI non-individual, can I update the details of the authorized person in the profile?

The NRI non-individual will be asked to enter the PAN number of the authorized person and Date of Birth (D.o.B). Hence, they will submit a request for the PAN validation and D.o.B and an e-Mail will be sent to the user with the success or rejection message.

As an NRI non-individual, I have updated the details of the authorized person in the profile section. Can I proceed with the 26QB correction?

If the NRI user has submitted the details of PAN of the authorized person and proceeds with the Form 26QB correction tab, then the following error message will be displayed.
“Error Message: Updation of Authorized Person Details is in the process. The updations confirmed will be informed through an e-Mail. Hence, the user can then proceed for the 26QB correction”

How can the NRI Taxpayers activate their TRACES account after registration?

Once validation will be approved by TRACES (internally), e-mail for activation of account along with activation code will be sent to the user. To activate an account in TRACES, users have to click on the activation link sent to registered e-Mail ID and submit the activation code within 48 hours.

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.