Tax saving Tips – Taxation rules for NRIs (Non-Resident-India) in India
Here are several exemptions and tax-saving suggestions that non-resident Indians can take advantage of :
Juggling finances in a single country isn’t good enough; needing to do it in two can be confusing . On the subject of filing taxes, NRIs find themselves in this unenviable situation because the Income tax rules for NRIs differ from those which are applicable for residents. Here is a pretty quick guide to NRI taxation.
Taxes applicable:
Income which is earned outside India by an NRI is not taxed here. An NRI doesn’t have to pay tax on the interest income in a non-resident external (NRE) account or foreign currency nonresident (FCNR) account. But you have to be very careful about taxes you pay in your new home country as some income that is exempt in India is taxable abroad.
Filing returns:
You don’t need to to file for tax return if you don’t have any income here. Alternatively, if the income accumulating in India by means of capital gains, rent, dividend or interest is beyond the threshold limit, you will need to file tax returns. Here, at the same time, you can claim certain deductions. So, for 2011-12 , an NRI (male, below 60 years) whose income is greater than 1.8 lakh and a person above 60 years who earns more than 2.5 lakh should file returns in India.
You don’t need to to file for tax return if you don’t have any income here. Alternatively, if the income accumulating in India by means of capital gains, rent, dividend or interest is beyond the threshold limit, you will need to file tax returns. Here, at the same time, you can claim certain deductions. So, for 2011-12 , an NRI (male, below 60 years) whose income is greater than 1.8 lakh and a person above 60 years who earns more than 2.5 lakh should file returns in India.
Investments
If, as a resident, you made some investments and redeemed them after becoming an NRI, these will be dealt with differently . For example, NRIs are not able to extend the tenure of their PPF account. Capital gainslong-term or short-term-will be applicable when you redeem/sell your past investments. If you sell shares that are listed on a recognised stock exchange in India after keeping them for over a year, you will not have to pay tax on the capital gain provided the securities transaction tax has been paid.
Tax-saving tips
NRIs can save on these taxes by investing in pension plans, life insurance policies and tax-saving mutual funds. The reimbursement by an NRI towards principal amount of home loan is eligible for deduction up to 1 lakh, while the interest payment is also allowed as a deduction. NRIs can also buy a health insurance policy here for themselves, their family and dependent parents , and claim deduction up to 35,000 for the annual premium paid. If you have been repaying an education loan, the interest paid can be claimed for deduction . NRIs can put their money in tax-saving bonds too. Capital gains up to 50 lakh earned from selling a capital asset can be invested in bonds of NHAI or REC. Investment income foreign currency bonds, are subject to tax at 20% as against the maximum rate of 30%. NRIs can invest in such assets and benefit from the lower rate. Also, an NRI can avail of lower tax rates on interest income through beneficial treaty provisions.