Wherever there is even a whiff of money, the taxes unabashedly sneak in.
Yes, taxes are hard to avoid. That is why, whether you're living in India or are an NRI, if your income exceeds Rs. 2,50,000, you are required to file an income tax return in India. That is why the Income Tax Act 1961 also has a special section for NRI Taxation that applies to those living outside the country. Due to non-resident status, the regulations for tax-payment for NRIs differ in relation to that for residents.
The primary point to note is that if you are an ‘NRI,' then only that part of your income will be taxable, which is earned or accrued in India. You may receive this salary directly to your Indian account, or it may be collected by someone else on your behalf. However, it will include the following-
1) Salary received in India or salary for any service provided in India
2) Property Income from a house situated in India
3) Capital gains on the sale of asset situated in India
4) Income from FDs or interest on savings account
However, for income earned outside India, you are not required to pay any tax in India. Also, interest earned by you on your NRE account (Account for parking foreign earnings) and FCNR account is free from tax. But interest on NRO account (Account for parking Indian earnings)will be taxable. Also, your income will be taxable at the slab rate you belong to, and the last date for you too will be 31st July as it is for the Indian residents.
How Can You Save Tax?
Just like various tax deductions help the Indian residents from saving tax, there are several deductions applicable to NRIs too. So, to help you realize your wish of tax saving in India, we have shared some of the sections that can help you-
1. Section 80C
Section 80C allows a maximum deduction of Rs. 1.5 lakh from an individual's gross total income. The deductions for NRIs under this section include:
i) Life Insurance Premium: In this case, the policy must be in your name or in your spouse or children's name (Child may be dependent, independent, married or unmarried, minor or major.)
ii) Children's Tuition Fees: This will only be allowed for a maximum of two kids.
iii) Loan Repayment For Purchase Of House Property: This will also include stamp duty, registration fees, or other transfer-related expenses.
iv) Investment in Equity Linked Savings Scheme: This is a great investment for tax benefit that can earn you high returns also.
v) Unit Linked Insurance Plan: Commonly called ULIP, this too is an investment for tax benefit. It offers you twin benefits – Insurance and Investment.
2. Section 80D
NRIs can claim a deduction up to Rs.25,000 for the premium paid towards health insurance of self, spouse, and dependent children. This deduction is available up to Rs. 50,000 for senior citizens.
Additionally, as an NRI, you can also claim a deduction for insurance of your parents up to Rs. 50,000if they are senior citizens, and Rs. 25,000 if they are not senior citizens. Also, beginning FY 2012-13, a deduction of up to Rs. 5,000 within the existing limit is allowed towards preventive health check-ups.
3. Section 80E
You can save tax against interest paid on any education loan taken for your higher education or that of your spouse or children or for a student for whom you are a legal guardian.
There is no limit under this section on the amount that can be claimed as a deduction. However, this deduction is available for a maximum of 8 years or until the interest is paid, whichever is earlier. It is not available on the principal repayment of the loan.
4. Section 80TTA
You can even claim deduction on your income from interest on the savings bank account. It has a maximum limit of Rs. 10,000.Such deposits may be with a bank, co-operative society or post office.
Several other deductions can also be claimed which may include one under Section 80G that allows deductions for any donations made by you. You can also claim a deduction for house property income, which will also include deductions for property tax paid and interest on the house loan. Also, if you are differently abled, then you can claim deductions under Section 80DD, 80DDB, 80U and a few other deductions under different sections.
Deductions not allowed for NRIs
NRIs cannot claim deductions under Section 80C on some investments in India-
i. Investment in PPF (As an NRI, you are not allowed to open new PPF accounts. However, you can maintain PPF accounts which you opened while you were a resident)
ii. Investments in NSCs
iii. Post office 5-year deposit scheme
iv. The senior citizen savings scheme
So, if you're looking for investments for tax benefits, then you can probably invest in ULIP which offers you both insurance and investment benefit. Reputable insurers like Max Life Insurance provide you with ULIP plans that allow you to invest your money in any of the six fund options. Moreover, this will also help you in tax saving in India.
Now you know a lot more about tax-saving as an NRI, so be smart and avail as many benefits as you can.
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