Applicable taxes for an NRI investing in India


Applicable taxes for an NRI investing in India

As an NRI investor, it is essential to learn and understand taxation basics With the liberalization of FDI, India has witnessed the flooding of NRI investors. Foreign investors are also keen to invest in India as most of the NRI’s want to build wealth at their home out of the emotional connection. So, as you invest in India it is important to be aware of how, when and why you are liable to pay taxes. Knowing these taxation basics not only you can invest smart but also can save a few pennies as well.

Income tax regulations
  • An NRI should obtain a Permanent Account Number (PAN) in India for investing here.
  • Only on the income earned in India is taxable for an NRI, while income earned outside India remains untaxed.
  • Income from salaries, capital gains, rental income and interest arising from bank deposits in India are taxable income for an NRI.
  • Though income earned outside India is not taxed for an NRI, in some countries, the income that is exempt in India may be taxable.
  • Also, the interest income through NRE(non-resident account) and FCNR(Foreign currency no resident) are non-taxable in India.
  • Except for capital gains, all the other income of NRI earned in India are taxed at a slab rate which is the same as a resident of India.
FEMA tax regulations

Foreign Exchange Management act 1999, manages all the monetary transactions of the NRI’s. FEMA laid certain rules and regulations that NRI is bound to follow for investing in India.

  • NRIs can have rupee accounts and foreign currency bank accounts in India on a repatriable or non-repatriable basis.
  • Investors can make a payment for investment through normal banking channels. Non-resident ordinary (NRO), non-resident external (NRE) or foreign currency non-resident (FCNR) accounts can be maintained in India by the investor for funding an investment.
  • NRIs benefit from tax-free repatriable interest earnings through their deposits with banks in India.
  • NRIs are eligible to take personal loans, home loans and loans for business purposes in India but should pay back only in Indian currency.
  • NRIs can also invest in shares and securities of any Indian company and does not need the prior permission of the RBI for transferring or selling shares to any resident of India.
  • Repatriation of proceeds from the sale of a property cannot exceed $1 million in a financial year. There is no restriction on NRIs repatriating rental income or even property sale proceeds as long as the total proceeds are within the set limit of USD1 million in a fiscal year.
Tax exemptions

NRIs obtain certain tax exemptions on fulfilling prescribed conditions. Incomes such as dividend income, long-term capital gains arising from the sale of equity shares, are exempt from tax. NRIs are also entitled to claim deductions and exemptions just like the residents of India:

  1. Deductions Under Section 80C
    • Deduction of up to Rs 1.5 lakhs is allowed under Section 80C from gross total income for an NRI individual.
  2. Deductions Under Section 80C, applicable to NRIs are:
    • Life insurance policy premium paid on the NRI’s name, their spouse or any child’s name.
    • Tuition fees paid to an educational institution in India for the education of any two children of an NRI.
    • Repayment of loan taken for buying a residential house property is also eligible for deduction.
    • Unit-linked insurance plan (ULIPS) premium paid by an NRI is eligible for deductions.
    • Investments in ELSS allows NRI’s to claim a deduction up to Rs 1.5 lakhs
    Filing Tax returns

    NRIs need not file a return of income if their total income includes only investment income and long-term capital gains. Also, NRI’s don’t have to file income tax returns if you don’t have any income here. However, if you accrue income in India through capital gains, rent, dividend or interest is beyond the threshold limit, you will have to file tax returns.

    Tips on tax saving

    NRIs can save on these taxes by investing in tax saving insurance policies or mutual funds Pension plans are also great if you are planning to save tax. The repayment amount of home loan is also eligible for deduction up to 1 lakh so buying a house property taking a loan will be great to save tax. You can buy a health insurance policy for yourself or your family and claim deduction up to 35,000 or just put your money in tax-saving bonds. These are a few ways NRI’s can earn income and save paying tax as well.

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