A significant difference exists between the taxation rules for NRIs and resident Indians in India. Here are some important things to keep in mind:
In the income tax slabs for NRIs, there are no specifics regarding gender, age, or other factors
In the case of NRIs, TDS is applied regardless of their income threshold
On investment income, nominal deductions are not allowed except under certain circumstances
As a general rule, NRIs who earn income under Section 115G do not need to file their taxes.
In the Income Tax Act, NRIs are covered by the following sections. Learn more about NRI legal services in India.
The computation of tax (Section 115D) –
The investment income of an NRI is not taxed
If the assessee is an NRI
Tax deductions are not allowed on gross total income (including investment income and long-term capital gains).
Income from investments and long-term capital gains will be reduced, and the remaining amount might qualify for deductions under Chapter VI-A if it only represents a portion of total income.
NRIs are subject to income tax on investments and long-term capital gains (Section 115E)
A capital gain derived from any asset other than shares in an Indian company, debentures issued by or deposits with a non-private Indian company, or any security of the Central Government.
NRIs earning capital gains over a long period of time will have to pay tax on the aggregate of the following:
20% tax is applied to investment income in 2(a)
In 2(b), the long-term capital gains income portion is taxed at 10%.
It would have been necessary to charge income tax if clauses 2(a) and (b) had been reduced from the total income
Capital gains tax on foreign exchange assets is not imposed in certain situations (Section 115F) – This includes exceptions for foreign exchange assets that are not subject to taxation when transferred
When an NRI invests part or all of the capital gains resulting from the transfer of foreign exchange assets in assets specified by the Central Government within six months at a cost equal to its value, such capital gains are exempt from taxation.
In three years from the date of acquisition, a capital gain not charged from the transfer of an asset becomes a chargeable income
Non-filing of income tax returns in specific circumstances (Section 115G) –
Income from capital gains and/or investment income was the only source of income during the previous year
A TDS deduction has been made from the income mentioned above
Tax benefits of NRIs who become residents (Section 115H) – Whenever an individual is an NRI in the previous year and becomes a resident in the following year, he is required to declare the return of income from foreign exchange assets, resulting in a change in tax assessments. Once an asset has been converted to cash, tax provisions remain in effect.
The non-application of provisions for NRI taxation (Section 115I) enables an NRI to decide whether or not to consider their income as investment income. Income derived from sources in India is taxable unless a choice can be made
Further, the Income Tax Department of India and the Central Government retain the right to modify the above rules.