A Guide to Understanding NRI Taxation in India
Posted on Tuesday, October 4th, 2016 | By IndusInd Bank
The Income Tax Department of India defines an NRI, or a Non-Resident Indian, as an individual of Indian origin but living outside the Indian subcontinent.
The Section 6 of the Indian Income Tax Act defines the NRI status of an individual more precisely. According to this section, an individual is considered an NRI if,
? He or she resides outside the country for a minimum of 182 days in the previous year.
? He or she was living outside the country for 60 days in the previous year, and for a combined 365 days in the past four years.
The taxable income for NRIs, and the corresponding rules, differs significantly from that applicable to resident citizens.
When Can the Income Tax Department Tax NRIs?
Any income generated outside the country cannot be taxed by the Income Tax Department as long as the individual maintains his non-resident status. Nevertheless, all sources of income generated through Indian resources by an NRI will be duly taxed by the Government.
What Types of Taxable Income Sources Are Commonly Associated with NRIs?
NRIs may generate capital gain through sale, rent or lease of properties for commercial, industrial or residential purposes. Some individuals may invest in one or more fiscal resources like shares, commodities and other resources that may offer significant monetary returns. Also, there are some categories of NRIs who receive income from an Indian company, such as professionals who visit foreign nations for long term business projects and receive dual salaries. In all the above cases, NRIs are expected to file for tax returns.
However, NRIs must qualify for the following two conditions in order to be eligible for tax payment.
? The taxable income for NRIs must be more than the exemption limit of INR 2 Lakhs.
? All monetary gains generated through sale of any investment or property must be taxed even if it is below the 2 Lakhs limit.
What Tax Exemptions Apply to NRIs?
All NRIs (irrespective of their age) are taxed according to the rules that are applied to resident Indians below 60 years of age. For tax returns, NRIs who have generated taxable income only through investment sources or long term capital gains are not eligible.
Every NRI must be well-versed with information related to tax rules and regulations to understand how taxes are levied, to avoid any violations and to ensure that filing of tax returns is carried out smoothly.