ITR Filing 2024-25: NRIs or Non-Resident Indians are required to file income tax returns in India if they have earned income in the country during the financial year. The income taxes of an NRI in India are determined by their residential status for the year in accordance with the Indian Income Tax Act, 1961. If an NRI’s status is classified as ‘resident,’ their global income becomes subject to taxation in India.
Income earned or accrued in India includes salary received in India, income from services provided in India, income from a house property situated in India, and capital gains on the transfer of assets located in India. These types of income are taxable for NRIs. On the other hand, income earned outside India is not taxable in India. Also, interest earned on Non-Resident External (NRE) Accounts and Foreign Currency Non-Resident (FCNR) accounts is tax-free, while interest on Non-Resident Ordinary (NRO) accounts is taxable for NRIs.
“Any income earned by NRI that is received or deemed to be received in India or accruing or deemed to accrue or arise in India is taxable in India. Such income chargeable to tax in India may include, but is not limited to salary earned in India, Rental income from property owned in India, Income from the sale of financial securities and assets held in India, Interest income, Dividend Income etc,” said Dr Suresh Surana, Founder, RSM India.
The taxability of salary income, rental income, dividend income, interest income and capital gains has been provided below:
1. Salary Income:
Chargeability: Salary income earned by an NRI for services rendered in India is taxable in India. If the services are rendered outside India, salary income may not be taxable in India unless it is received in India or from an Indian employer.
Tax Treatment: Generally, salary income is subject to tax withholding (TDS) by the employer in India and subject to tax as per the income tax slab rates. NRIs need to file tax returns in India if their total income exceeds the basic exemption limit to claim refunds or adjust tax liabilities.
2. Rental Income:
Chargeability: Rental income from property located in India is taxable for NRIs.
Tax Treatment: TDS is applicable on rental income exceeding a certain threshold and such income would be subject to tax as per the marginal slab rates. NRIs need to file tax returns in India to declare rental income and pay taxes accordingly. Deductions for property taxes, standard deduction @ 30%, etc., can be claimed.
3. Capital Gains:
Chargeability: Capital gains arising from the sale of assets located in India are taxable for NRIs. This includes gains from real estate, shares, mutual funds, etc.
Tax Treatment: Different tax rates apply for short-term and long-term capital gains. NRIs can benefit from indexation for long-term capital gains on specified assets.
4. Interest & Dividend Income:
Chargeability: Interest income earned from bank deposits, fixed deposits, bonds, etc., in India is taxable for NRIs. Also, dividends received from Indian companies are taxable in India.
Tax Treatment: TDS is applicable on interest income exceeding specified thresholds. NRIs need to file tax returns in India to declare such income and pay taxes as per their applicable tax slab. It is important to note that any interest earned on Non-Resident External (NRE) and Foreign Currency Non-Resident (FCNR) accounts is tax-exempt. However, interest earned by a non-resident on a Non-Resident Ordinary (NRO) account remains taxable.
5. Gifts:
Chargeability: Gifts received in India by an NRI are taxable under certain conditions.
Tax Treatment: Gifts received from specified relatives are exempt from tax. However, gifts of specified assets received from non-relatives above specified limits are taxable. NRIs need to disclose such gifts in their tax returns. The receipt of gifts is further subject to the conditions as prescribed under the foreign exchange regulations in India.
6. Tax Treaty Benefits
According to Section 90(2) of the Income-Tax Act, with respect to the above discussed income heads, NRIs can evaluate to apply either the double tax treaty rate or the rate specified under the IT Act, whichever is more beneficial. To avail the tax treaty rate, NRIs need to provide certain specified documents, including a tax residency certificate (TRC), Form 10F, and a non-permanent establishment (PE) declaration, among others.