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NRI Taxation In India

April 07, 2017

NRI taxation in India is a constant matter of concern for the vast number Indians living all over the world who have to send money home to their loved ones or make investments planningfor themselves and their families. The tax filing season is a time of constantly looking for ways to save income tax that you have to pay on your hard earned money. Indeed NRI taxation rules India are generally friendly towards bringing NRI income into India and the ground rule is that income which is earned outside India by an NRI is not taxed in India.

There are also a variety of other incomes that aren’t taxed in India. In fact, most NRIs have bank accounts in India – either non-resident external accounts or foreign currency non-resident account. While Indian residents have to pay tax on their savings bank account interest above Rs. 10,000, NRIs do not have to pay tax on the interest arising out of these bank accounts. For the most part, returns NRI investment in India are exempt from tax.

NRI taxation norms are favorable to garnering more investments made from income generated in countries other than India because this directly adds to the economy’s growth. Since the government does not have to spend money on non-residents, they incentivize their options to park these funds back home. Long-term or short term gains from investments or sale of assets such as house would however, be taxed in India. In addition, rental income is taxed in India, but a standard deduction of 30% of the rent, after subtracting municipal taxes is allowed in India.

Inherited assets from Indian parents or relatives are not taxed when they are transferred. However, recurring gains as rental income or income from sale or transfer from these assets would be liable to tax. Certain important benefits of income tax deduction under section 54, 54EC and 54F can be availed if you invest the proceedings of any long term or short term capital gains in India. It is only if earnings from all sources put together such as rent, dividend, capital gains, investment income, etc goes beyond Rs. 2.5 Lacs or Rs. 3 Lacs for those between 60 to 80 years of age, Rs. 5 Lacs for those above 80 years that you need to go through the process of filing taxes.

Should your income still exceed this threshold, you can still claim all the deductions by investing in various investment avenues eligible for 80C. However, NRIs are not allowed to invest in National Saving Certificates (NSC), Senior Citizens Savings Scheme, Post Office Time Deposits or open new PPF accounts or extend them. Other tax saving instruments such as home loan, life insurance, pension plan, and equity-linked savings schemes of mutual funds are allowed. Tuition fee paid for spouse or children in India too can be claimed for deduction. Health insurance policies or health check-ups paid for parents or dependents in India too are allowed for deduction under section 80D.

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