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Understanding NRI income tax rules

Navigate the intricacies of India tax law with our comprehensive guide to NRI taxation in India.

The allure of India as a land of opportunities has drawn million of its citizens overseas. Yet, maintaining financial interests back home often comes with tax obligations. 

Non-resident Indians (NRIs) are taxed on income earned or collected in India. This could be from sources like property rent, share dividends, and investment and savings capital gains, if over a specified limit. Income earned outside India is not taxable in India.

You must be aware of the income tax rules and provisions for NRIs to avoid unnecessary penalties.

Determining your residential status

Determining whether you are a resident, non-resident or resident but not ordinarily resident (RNOR) is crucial. Your status will dictate your tax liability.

Who is a resident?

You are a 'resident' of India (for tax purposes) if:

  • You stayed in India for 182 days or more during the financial year; or
  • You stayed in India for at least 60 days during the financial year, and at least 365 days in the preceding four financial years

Where an Indian citizen leaves India in any year for the purpose of employment, or as a member of a crew of an Indian merchant ship, the period of 60 days is to be replaced by 182 days.

Similarly, when an Indian citizen or a person of Indian origin (PIO) who is abroad comes to visit India, the period of 60 days is to be replaced by 182 days. Further, if an Indian citizen or PIO has a total income of more than INR15 lakh (other than income from foreign sources) in the financial year, the period of 60 days will be replaced by 120 days.

An Indian citizen or PIO, having total income of more than INR15 lakh (other than income from foreign sources) in a financial year and not liable to pay tax in any other country, would be deemed a resident in India, irrespective of the number of days spent in India.

You are a 'resident but not ordinarily resident' if:

  • You stayed in India for 729 days or less during the preceding 7 financial years; or
  • You're a non-resident in 9 out of 10 preceding financial years; or
  • You're an Indian citizen or PIO having total income exceeding INR15 lakh in a financial year and stayed in India for 120 days or more but less than 182 days

You are a 'non-resident' in India if:

  • Any of the above stated conditions are not met

Pay your taxes online

See our step-by-step guide to make your online income tax payment directly from your HSBC account, safely and securely.

Taxable income for an NRI

If you're classified as a non-resident, only your earnings made in India would be taxable in India. Your income sourced from outside India will not be taxable in India. The following types of incomes, among others, may fall under this category:

  • Salary received for services provided in India
  • Salary received in India
  • Rental income from property owned in India
  • Capital gains earned on the transfer of assets located in India
  • Revenue from Fixed Deposits
  • Interest on bank savings accounts

The income tax slabs for NRIs are based on their income and are the same for both men and women across age groups.

Salary income - Salary income is taxable in India at slab rates.

Rental income - Rental income is taxable at slab rates. An NRI can claim 30% standard deduction on rental income and deduction of municipal taxes paid.

Capital gains tax - NRI capital gains are taxable at 12.5% or 20% slab rates (plus applicable surcharge and cess), depending upon the nature of the capital asset and period of holding.

How to pay your taxes through HSBC

Special tax rates

The Income Tax Act, 1961 (IT Act) prescribes tax rates for various types of investment income of non-residents. Here are some examples:

  • Royalties and fees for technical services (provided income is not attributable to a permanent establishment in India) from an Indian concern or the government are taxed at 20% (plus applicable surcharge and cess).
  • Dividends are taxed at 20% (plus applicable surcharge and cess).
  • Interest received from the government or an Indian concern on monies borrowed or debt incurred in foreign currency is taxed at 20% (plus applicable surcharge and cess).
  • Interest received from a notified Infrastructure Debt Fund is taxed at 5% (plus applicable surcharge and cess).

Double taxation relief

The Double Taxation Avoidance Agreement (DTAA) between countries can help NRIs can avoid double taxation on their income. They can do this when they claim tax relief by 2 methods:

  1. Exemption method: Under this method exemption can be claimed from paying taxes in any one country, i.e. either the residence or source country, subject to certain conditions.
  2. Tax credit: Credit of tax paid is claimed in the country where the NRI resides.

To claim treaty benefits, the non-resident taxpayer must provide the Tax Residency Certificate, which proves their residence outside India, and other prescribed documents.

Income tax exemptions for NRIs

According to income tax rules for NRIs, you can enjoy tax exemptions on the following income types:

  • Interest from a foreign currency non-resident rupee (FCNR) account or non-resident external (NRE) account
  • Interest on 'NRI Bonds 1988' and 'NRI Bonds' (Second Series), issued by SBI purchased in foreign exchange
  • Interest on FCY deposits placed with an offshore banking unit in an International Financial Service Centre
  • Long-term capital gains to the extent of INR1.25 lakh from listed equity shares and equity-oriented mutual funds

Further, certain capital gain transactions are entitled to tax exemption subject to the following conditions being met:

  • If capital gains arise out of the sale of any property other than a house, the exemption can be claimed on the construction or purchase of a new house, proportional to the sale proceeds spent on the new asset.
  • Where the house property is held for more than 3 years and is subsequently sold, the proceeds received should be used to purchase or construct another house property within the given time frame. Exemption would be decided on the basis of investment of receipts.
  • When long-term capital gains are invested in bonds issued by government authorities, like the National Highway Authority of India and Rural Electrification Corporation, within a period of 6 months, exemption could be claimed up to the total amount out of gains or a maximum of INR50 lakhs, whichever is lower in a financial year. Investment cannot be transferred before the end of 3 years.

Tax deductions for NRIs

Investment deductions under Section 80C up to INR1.5 lakh

  • Life Insurance premium
    Tax deduction shall be the actual amount of premium paid for their spouse or children in a financial year. The premium paid should also not be more than 10% of the sum assured.
  • Tuition fees
    Tuition fees paid to any school, college, university or other educational institution within India for the full-time education of any two children, are eligible for deduction.
  • Investment in ELSS and ULIPS
    Investment in Equity Linked Savings Scheme (ELSS) from mutual funds and Unit Linked Insurance Plans (ULIPs) are eligible for deduction.
  • Repayment of loans
    Repayment of the loan taken for buying or constructing residential house property is eligible for deduction. You can also receive a deduction on the stamp duty and registration fees.

Deductions under Section 80D

  • Health insurance for self, spouse or dependent children
    The premium paid for this health insurance is deductible up to INR25,000, or up to INR50,000 for senior citizens.
  • Health insurance of parents
    The premium is deductible up to INR25,000, or up to INR50,000 for senior citizens.
  • Preventive health check-up
    An additional deduction of up to INR5,000 are available on the charges paid for preventive health check-ups.

Deduction on interest paid on education loan under Section 80E

Interest paid on a higher education loan for the NRI, spouse, children, or a student for whom the NRI is a legal guardian is deductible, without any limit, for a maximum of 8 years.

Deductions under Section 80G

Deductions for donations made to eligible NGOs are allowed.

Deduction under Section 80TTA

Up to INR10,000 of interest earned on savings bank account is allowed as a deduction.

Tax rates applicable for NRIs

NRIs have the same tax slab rates as residents. Both NRIs and residents have the flexibility to choose between the old tax regime and the new tax regime slabs. Each option offers distinct advantages and understanding them can help you make an informed decision that aligns with your financial goals.

Table 1: Old tax regime rates for NRIs under 60 years old

Slab (INR) Rate
Income up to INR2,50,000[@article-NRI-tax-60-to-80-years] Nil
2,50,001 to 5,00,000[@article-NRI-tax-over-80-years] 5%
5,00,001 to 10,00,000 20%
10,00,001 and above 30%

Table 1: Old tax regime rates for NRIs under 60 years old

Slab (INR) Income up to INR2,50,000[@article-NRI-tax-60-to-80-years] Income up to INR2,50,000[@article-NRI-tax-60-to-80-years]
Rate Nil Nil
Slab (INR) 2,50,001 to 5,00,000[@article-NRI-tax-over-80-years] 2,50,001 to 5,00,000[@article-NRI-tax-over-80-years]
Rate 5% 5%
Slab (INR) 5,00,001 to 10,00,000 5,00,001 to 10,00,000
Rate 20% 20%
Slab (INR) 10,00,001 and above 10,00,001 and above
Rate 30% 30%

Table 1 rates shall be further increased by applicable surcharge and health and education cess.

Table 2: New tax regime under Section 115BAC[@article-NRI-tax-deductions] for NRIs under 60

Slab (INR) Rate
Income up to INR3,00,000 Nil
3,00,001 to 7,00,000 5%
7,00,001 to 10,00,000 10%
10,00,001 to 12,00,000 15%
12,00,001 to 15,00,000 20%
15,00,001 and above 30%

Table 2: New tax regime under Section 115BAC[@article-NRI-tax-deductions] for NRIs under 60

Slab (INR) Income up to INR3,00,000 Income up to INR3,00,000
Rate Nil Nil
Slab (INR) 3,00,001 to 7,00,000 3,00,001 to 7,00,000
Rate 5% 5%
Slab (INR) 7,00,001 to 10,00,000 7,00,001 to 10,00,000
Rate 10% 10%
Slab (INR) 10,00,001 to 12,00,000 10,00,001 to 12,00,000
Rate 15% 15%
Slab (INR) 12,00,001 to 15,00,000 12,00,001 to 15,00,000
Rate 20% 20%
Slab (INR) 15,00,001 and above 15,00,001 and above
Rate 30% 30%

Surcharge - Surcharge is an additional charge levied for persons earning income above the specified limits. It's charged on the amount of income tax calculated as per applicable slab rates. For rates of surcharge, refer to tax rate regimes tables 1 and 2.

Tax regime based on total income

Total income Old tax regime New tax regime
Up to INR50 lakh Nil Nil
Above INR50 lakh and up to INR1 crore 10% 10%
Above INR1 crore and up to INR2 crore 15% 15%
Above INR2 crore and up to INR5 crore 25% 25%
Above INR5 crore 37% 25%

Tax regime based on total income

Total income Up to INR50 lakh Up to INR50 lakh
Old tax regime Nil Nil
New tax regime Nil Nil
Total income Above INR50 lakh and up to INR1 crore Above INR50 lakh and up to INR1 crore
Old tax regime 10% 10%
New tax regime 10% 10%
Total income Above INR1 crore and up to INR2 crore Above INR1 crore and up to INR2 crore
Old tax regime 15% 15%
New tax regime 15% 15%
Total income Above INR2 crore and up to INR5 crore Above INR2 crore and up to INR5 crore
Old tax regime 25% 25%
New tax regime 25% 25%
Total income Above INR5 crore Above INR5 crore
Old tax regime 37% 37%
New tax regime 25% 25%

Note: In case total income includes income by way of dividend or income under the provisions of section 111A, section 112 and section 112A of the IT Act, surcharge will be capped at 15%.  

Health and education cess - Cess at the rate of 4% shall also be paid on the amount of income tax plus surcharge (if any).

Tax returns for NRIs

If an NRI earns taxable income in India, they are required to file an income tax return in this country. Filing is necessary if:

  • The gross total income before any deductions exceeds the maximum amount not chargeable to tax
  • A refund from the government is desired
  • The NRI requires to carry forward losses

NRIs can e-file their tax returns by visiting the portal of the Income Tax Department of India.

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Notes

Disclaimers:

The information provided in this article is generic in nature and for information purpose only. You are recommended to consult your tax advisors to understand the taxes applicable to your specific case. Tax benefits are subject to changes in tax law.

 

This publication has been issued by The Hongkong and Shanghai Banking Corporation Limited (HSBC), India, Incorporated in Hong Kong SAR with limited liability, for the information of its customers only. This publication does not constitute investment advice or an offer to sell, or a solicitation of an offer to purchase or subscribe to any product / investment. The information herein is derived from sources believed to be reliable and the concerned Information Provider(s) have duly authorized HSBC to use such information provided by them. Whilst every care has been taken in compiling the information, HSBC and the concerned Information Provider(s) do not guarantee, or make any representation or warranty and accept no responsibility or liability as to its accuracy or completeness and shall not be liable for damages arising out of any person's reliance upon this information or any action taken or not taken as a result of any material contained in the publication. Expressions of opinion are those of HSBC and the Information Provider(s) only and are subject to change without notice. HSBC has not independently verified any information provided by the Information Provider(s) or that has been derived from the sources believed to be reliable by HSBC. Opinions expressed herein do not have regard to specific investment objectives, financial situation and the particular needs of any specific person who may receive this publication. This document is for circulation in India only. No part of this publication may be reproduced or stored in a retrieval system without the prior written permission of HSBC. Any liability is accordingly expressly disclaimed by HSBC, its officers, directors and employees.