Tax Planning And Saving Tips For NRIs
By Advocate Kohal Dev Sharma, Punjab and Haryana High Court, Chandigarh
All Non-Resident Indians need to pay tax for the income that they earn in India, irrespective of the fact that such an income is earned directly or indirectly by the said NRI. Any income that is generated from assets owned or investments made in India or an income that is the result of a business transaction is taxable. An NRI will have to pay tax for all such incomes that are earned by them in India. However, tax can only be levied on an income that is earned in India by an NRI and the income that is earned or accrued in a foreign state is non-taxable. This is the biggest difference between tax paid by a resident Indian and a Non-Resident Indian.
Who is an NRI?
The definition of a Non-Resident Indian is quite simple. An Indian is considered a non-resident when he or she has stayed out of India for more than 182 days in a financial year, has been in India for less than 60 days in the current financial year or has stayed in India for less than 365 days in the past 4 years.
Income Tax Planning: How to proceed?
We all wish to save on our tax payments as much as we can and NRIs are no different. However, since NRIs are governed by different rules it is important that they do their income tax planning beforehand. NRIs need to know the kind of incomes that are taxable and the ones that are non-taxable.
Taxable income of NRIs
- Income generated from capital gains of short term investments or interest earned.
- Capital gains received or accrued from transfer of property or any other capital investment.
- Income generated or accrued from a salary in India.
Non-taxable income of NRIs
- An interest that is earned from an NRE account.
- An allowance paid to an NRI by the Indian Government for his or her services outside India.
- Interest earned on particular saving certificates or bonds
What are the instruments that can help save tax for an NRI?
Well, there are certain ways that can be utilized in order for NRIs to save tax. These are the instruments that can be used in order to save the income from getting taxed:
- Getting a PAN number: There is a limit to the income of an individual for getting tax exemption and if that limit is crossed, tax is levied accordingly. In case an NRI makes an investment in India and fails to furnish PAN details, they will end up paying a higher amount of TDS. This is why it becomes really important for NRIs to have a PAN number so that they can save on tax.
- Making use of deductions: Every individual gets deductions under the tax system in India and NRIs are no exception to this rule. They are eligible to certain deductions which they can avail from time to time.
- Availing the advantages of the provisions: An NRI should always take advantage of the provisions that are available in his or her case. NRIs can avail benefits of provisions that are laid down for long term assets that are bought in foreign currency.
- Maintaining their status as an NRI as per tax norms: Any individual’s income is taxable after the same is computed taking into account his or her residential status. In case of an NRI foreign income is not taxable in India. So what an NRI should do is to plan their visits to India in a way that their status of being an NRI does not change.
- Getting a home loan: If an NRI buys a home in India and gets a home loan for it, he or she can avail tax exemption up to a certain limit for paying interest on that home loan. Even the property tax paid on such house is exempted from the tax bracket making it a great option for NRIs to save tax.
NRIs have a lot of options when it comes to tax planning and saving. It may however be noted that NRIs have to pay a higher amount of tax in some cases as compared to resident Indians. It is therefore necessary that an NRI does his or her research carefully in order to save themselves from getting taxed heavily.
All of the above tax saving options are a great way to save money and NRIs need to consider these sincerely and plan their future accordingly especially if the wish to come and settle back in India post retirement. If the planning isn’t right an NRI may end up losing a large chunk of their earnings from investments and interests. It is always advisable to get in touch with an accountant who knows all the tricks of the trade and can help save on tax. What is also important that as an NRI you do the research for yourself in order to have first-hand information about all the options that you have.
About the Author:
Kohal Dev, is a lawyer by profession and has a penchant for writing and his ability to juggle several tasks at a time, in the most effective and efficient manner is something that allows him to deliver content fresh out of the box. His extensive experience in the field of Law, Finance, Real Estate and Marketing allows him to write some of the most amazing blogs and articles in exactly the way they are required to be done. When not at work, he can be found reading and of course, writing.