Income Tax is a matter of interest both for citizens and NRIs – though the rules of taxation for both could vary. An NRI is a person who has an Indian passport and has temporarily migrated to another country for six months or more for employment, residence, education or any other purpose.
If an Indian citizen leaves the country for work abroad or as a crew on an Indian ship and spends less than 182 days in India in a year, he or she is considered non-resident for tax plans.
Taxability in India depends on if an individual suits the NRI status for each year.
Following are few regulations of income tax NRIs should acknowledge:
- An NRI has to pay tax on any income that accumulated in India or received in India. So salary received in India, rental income, interest income from fixed deposits or saving bank accounts and capital gains on assets sold in India are taxable. If the salary of an NRI is higher than the basic exemption limit for the year, he/she is subject to file return in India. Also, to claim tax refunds, or to carry forward losses to future years, NRIs have to file income tax return.
- If an NRI returns to India forever, his or her foreign income does not instantly become taxable in India. A person, who has stayed as a non-resident for nine consecutive years, continues RNOR (Resident but not Ordinarily Resident) for two years for tax plans, which is transitional status amid being an NRI and converting into an Indian citizen completely. Until a returning NRI becomes a resident in India, as per the Income Tax laws, which commonly takes about two years – any profit obtained outside India will not be assessed in India except it is from a business or profession managed from India. Once, he is a resident, his global income (which includes income outside India as well) gets taxed in India.
- The Budget stated that TDS (tax deducted at source) would not be subtracted at a higher rate if an NRI without PAN can provide alternative documents. Earlier the NRI had to pay the tax at the rate of 20 percent or the rate in force whatever is higher in case the NRI does not provide the PAN. According to the new provision, an NRI does not have to pay the higher tax if he does not provide PAN and instead provides the documents specified under the recently notified rules in this regard.
- If an NRI returns to India and becomes Ordinary Resident Indian for a particular year, then the person will have to reveal all the foreign income and assets in the income tax proceeds. There are harsh punishments as per the Undisclosed Foreign Income and Assets Bill 2015 for not doing so. Such income will not be assessed henceforth under the Income Tax Act but under the provisions of this new legislation on the unaccounted wealth.
- An NRI cannot open a Public Provident Fund (PPF) account. But if an individual has a PPF account already before becoming an NRI, he or she can continue to operate the account, but only till the period of its maturity. At maturity, the NRI would have the choice to absolve the returns in the home country and will not have the option of continuation after the necessary 15 years’ lock-in period. If after maturity the account is left unattended; it will be recognized as “extended without contribution.”