Income tax rules for NRIs under new income tax law in India are often confusing because they combine residential status tests, special provisions for foreign income and treaties with other countries. This guide explains key rules for non resident individuals with Indian income or assets.<\/p>\n
The starting point is to determine whether you are a non resident for the relevant financial year. As explained in separate guides, residential status depends mainly on the number of days you stay in India during the year and over preceding years.<\/p>\n
Once you are classified as non resident, income tax rules for NRIs under new income tax law in India typically provide that:<\/p>\n
1. Only income that accrues or arises in India, is deemed to accrue or arise in India, or is received in India is taxable.<\/p>\n
2. Foreign income that has no connection with India is usually not taxable, subject to anti avoidance rules and treaty provisions.<\/p>\n
3. Special rates may apply to certain types of income such as interest, dividends, royalty and fees for technical services.<\/p>\n
NRIs must also consider double taxation avoidance agreements entered into by India with their country of residence.<\/p>\n
Important categories of income to review when applying income tax rules for NRIs under new income tax law in India include:<\/p>\n
1. Income from house property in India, such as rent from a flat or commercial premises.<\/p>\n
2. Capital gains from sale of shares, securities or immovable property situated in India.<\/p>\n
3. Interest on NRO bank accounts, fixed deposits and certain bonds.<\/p>\n
4. Dividends from Indian companies.<\/p>\n
5. Income from business or profession controlled from India or set up in India.<\/p>\n
For each category, the new act and rules may specify applicable tax rates, TDS requirements and exemptions.<\/p>\n
Income tax rules for NRIs under new income tax law in India give significant importance to TDS.<\/p>\n
Key points:<\/p>\n
1. Tenants paying rent to an NRI landlord may have to deduct TDS at a specified rate and deposit it with the government.<\/p>\n
2. Buyers of property from an NRI seller often have to deduct TDS on the sale consideration at rates that vary by type of capital gain.<\/p>\n
3. Banks deduct TDS on interest on NRO accounts and deposits.<\/p>\n
4. Portfolio investment income may be subject to TDS by brokers or custodians.<\/p>\n
NRIs should monitor their Form 26AS and AIS on the income tax portal to ensure that TDS credits are properly reflected.<\/p>\n
Income tax rules for NRIs under new income tax law in India usually require a return to be filed in India if:<\/p>\n
1. The taxable income in India exceeds the basic exemption limit; or<\/p>\n
2. The NRI wishes to claim a refund of excess TDS; or<\/p>\n
3. The NRI wishes to claim treaty benefits or carry forward losses.<\/p>\n
NRIs should:<\/p>\n
1. Use the correct ITR form that covers non resident and foreign asset disclosures.<\/p>\n
2. Disclose all Indian income, bank accounts and specified assets as required.<\/p>\n
3. Maintain documentation for any treaty relief claimed, such as tax residency certificates.<\/p>\n
Non filing may lead to notices, interest and penalties.<\/p>\n
Some basic planning points:<\/p>\n
1. Track day counts to avoid unintended change in residential status.<\/p>\n
2. Consider holding investments in appropriate forms (NRE, NRO, FCNR) after taking professional advice.<\/p>\n
3. For property transactions, obtain a tax computation and lower TDS certificate if the standard TDS rate leads to excess deduction.<\/p>\n
4. Coordinate with advisors in both India and the country of residence to optimise overall tax burden.<\/p>\n
Income tax rules for NRIs under new income tax law in India are detailed and change frequently through notifications and circulars, so periodic review is essential.<\/p>\n
Related: residential status under new income tax law in India (link: \/blog\/new-income-tax-act-residential-status)<\/p>\n
Related: TDS on sale of property by NRIs (link: \/blog\/tds-sale-property-nri-india)<\/p>\n
Related: managing NRE, NRO and FCNR accounts for tax efficiency (link: \/blog\/nre-nro-fcnr-tax-planning)<\/p>\n
Official resources:<\/p>\n
Income tax rules for NRIs under new income tax law in India are often confusing because they combine residential status tests, special provisions for foreign income and treaties with other countries. This guide explains key rules for non resident individuals… Continue Reading