Non-Resident Indian (NRI) Taxation in India

Non-Resident Indians (NRIs) play a pivotal role in making the Indian economy prosper. This article discusses the taxation procedure for NRIs” income and how Double Taxation Avoidance Agreements (DTAs) with other nations help reduce NRIs” tax burden.

Who is an NRI?

According to Section 6 of the Income-tax Act, 1961 (the Act), an individual is considered an NRI for a Financial Year (FY) if they do not meet the following conditions:

• Physical stay in India = 182 days in the relevant FY.
• Physical stay in India = 60 days during the relevant FY and = 365 days in the preceding 4 FYs.

If an Indian citizen or person of Indian origin residing outside India visits India and their total income is Rs.15 lakh or below, the 60-day threshold is replaced with 182 days. If such income exceeds Rs. 15 lakh, the 60-day threshold is replaced with 120 days.

Additionally, if an Indian citizen earns an income of less than Rs.15 lakh in India and is not liable to tax in any other country by reason of domicile/residence/any other similar criteria in such other country, then such individuals are considered to be Resident but Not Ordinarily Resident (RNOR) in India.

Taxation in India and Filing of Tax Return

NRIs are liable to pay tax on the income earned/received in India. Income earned outside India is not taxable in India. The taxation is generally normal, except for specific incomes that are taxed at flat rates (e.g., dividend from shares of Indian companies, foreign currency investment in specified securities, etc.).

NRIs whose taxable income exceeds the threshold limit of income not chargeable to tax (i.e., Rs. 3 lakh for FY 2023-24 under the new tax regime), are advised to file income tax within the specified due date. If the taxpayers follow the old tax regime (higher tax slab rates but with exemptions/deductions), the threshold limit is Rs. 2.50 lakh.

Tax filing requirements are also applicable in specific circumstances even if income is below the above-mentioned thresholds.

Assets Reporting

NRIs with a total income of above Rs. 50 lakh need to provide details of Indian assets and corresponding liabilities as on 31st March of the FY in their income tax return. Additionally, NRIs are advised to report the details including shares held in unlisted companies (including foreign companies) and directorships held in companies (including foreign companies having incomes received/earned in India).

DTAA Benefits

Under DTAs, NRIs can claim tax/credit of tax paid in India in the countries they live in. This is to avoid double taxation. With this facility, NRIs will be able to enjoy the lower rate of Indian taxation prescribed in the DTAs with respect to dividend, interest incomes in India, and the tax exemptions provided in specified cases with respect to salary and professional incomes.

The beneficial provisions (as applicable) suggested above are available only if the NRI qualifies as a Resident of a foreign country and a Tax Residency Certificate (TRC) is obtained from the foreign tax authorities. In cases where the TRC does not include the particular aspects (like nationality, tax identification number, period, etc.), then a separate Form 10F is advised to be e-filed by the taxpayer.