Tax Filing for NRIs

As an NRI, understanding your tax obligations in India is essential to ensure peace of mind and full compliance. While the rules may seem complex at first, taking a step-by-step approach can make the process manageable and even empowering. Let’s walk through what you need to know.

Start with Your Residential Status

The first step is understanding your residential status for tax purposes—it’s crucial, and it’s determined based on the number of days you’ve spent in India during a financial year. If you’ve stayed in India for 182 days or more, you’ll typically be treated as a resident. If not, you’re considered an NRI. This distinction is important as it defines the scope of your taxable income in India.

Identify and Calculate Your Taxable Income

As an NRI, you are liable to pay tax on:

Income that accrues or arises in India
Income that is received or deemed to be received in India

This includes salary (if services are rendered in India), rental income, capital gains, and interest on NRO accounts. However, interest on NRE and FCNR accounts is tax-free.

If your gross total income exceeds ₹2.5 lakhs, it’s time to file your tax return. Don’t forget—TDS (Tax Deducted at Source) may have already been applied to your income, and you can claim refunds or adjust this against your tax liability.

Leverage the DTAA (Double Taxation Avoidance Agreement)

India has DTAA agreements with several countries that help prevent double taxation.

Depending on your country of residence, you might:

Be exempt from Indian tax altogether
Get a tax credit in your resident country for taxes paid in India
Pay tax at a reduced rate

It’s wise to consult a tax advisor or use India’s DTAA provisions to optimize your tax situation.

Don’t Forget to Verify Your Tax Return

After filing your return, please make sure to verify it within 120 days. Without verification, your return is not considered valid. E-verification is quick and easy and can be done through Aadhaar OTP, net banking, or other options.

Types of Income and How They’re Taxed

Here’s a quick look at how different incomes are treated under Indian tax law for NRIs:

Salary: Taxable if services are rendered in India—even if received abroad.
House Property: Rental income is taxable. NRIs can claim deductions for property tax, interest on a home loan, and principal repayment under Section 80C.
Capital Gains: Any gain from the sale of property or securities in India is taxable. Long-term gains are taxed at 20% (TDS applicable), with options for exemptions under Section 54 or 54EC.
Interest Income: NRO account interest is fully taxable. NRE and FCNR interest are exempt.
Special Investment Income: Income from specified Indian assets is taxed at a flat 20%. If this is your only income and TDS is deducted, you may not need to file a return.

Deductions and Exemptions

NRIs are also eligible for many Section 80C deductions, including:

Life insurance premiums
Children’s tuition fees
Home loan principal repayment
ELSS investments and ULIPs

Additional deductions:

80D: Health insurance premium
80E: Education loan interest
80G: Donations to approved causes
80TTA: Savings account interest (up to ₹10,000)

Do note: Some deductions available to residents aren’t open to NRIs (like PPF, NSC, and post office schemes).

Selling Property? You Can Save on Taxes

If you’re selling property in India, remember:

TDS of 20% is applicable on long-term capital gains.
You can claim exemptions under Sections 54, 54F, or 54EC by reinvesting the gains.

Make sure to retain proof and provide it to the buyer to avoid excess TDS—and yes, you can claim a refund if it’s been over-deducted.

Conclusion

Tax laws may seem daunting, but with the right approach and timely planning, they don’t have to be overwhelming. Staying informed and proactive allows you to manage your Indian tax responsibilities while continuing to thrive abroad. For specific guidance tailored to your situation, always consider speaking to a tax professional who understands both Indian and international tax laws.