Saturday, July 9, 2016

5 Tax Saving Schemes not available to NRIs

If you have been filing your income tax returns in India then you know that there are a lot of tax saving options you can use to claim tax deductions and exemptions under a various section of income tax law of India. For example, section 80C allows both resident and non-resident taxpayer of a deduction up to 1.5 lacs from their gross taxable income. This can substantially reduce your tax liability by bringing down your total taxable income into lower income tax slab rates. Unfortunately, not all tax saving schemes available to the resident taxpayer are available to NRI e.g. there are almost 13 ways to save tax under section 80C, which I know, there are more but many of them are not available to NRI taxpayers. In this article, I'll let you know the difference in tax deductions and exemptions applicable to NRI and resident taxpayer.


If you remember, it's not mandatory for NRI to file income tax returns, especially if they have only investment income in India and TDS is already deduced from them, but if you have to file income tax in India, then it's important to know which tax saving options is available to you.

Since many NRI have paid income tax when they were tax resident they might assume that all the tax saving option available to resident taxpayers is also available to NRI taxpayers, which is not true. There are many tax saving options which is only avilable to resident indians, which you will learn in this article.




Tax Saving Options Not available to NRIs

Here is a list of income tax saving options which are not available to Non Resident taxpayers:

Public Provident Fund (PPF)
One of the most common tax saving options of income tax payers in India is PPF (Public Provident Fund), which serves both purpose of retirement planning with tax saving. Unfortunately, NRIs are not allowed to use PPF for the tax deduction because NRIs cannot open a new PPF account, however, PPF accounts which are opened while NRI was resident are allowed to be maintained and you can claim that amount under section 80C.


National Pension System (NPS)
NPS (National Pension System) was another tax saving option which was not available to NRI earlier but recently made available to them. Now, NRI can open National Pension Scheme account and save some money on income tax.


Sukanya Samriddhi Yojana (SSY)
One more tax saving option which is not available to NRIs is investment under Sukanya Samriddhi Yojna. This is relatively newer tax saving option available to resident Indians who has girl child under 10 years old. This scheme is launched to encourage saving for girl child e.g. for their higher education and marriage. I really like this scheme because of the purpose and higher interest rates offered around 9%, highest among other safe investments, but unfortunately, NRIs with girl child cannot open Sukanya Samriddhi Yojna account.  See here to learn more about SSY eligibility criterion.


Rajiv Gandhi Equity Saving Scheme (RGESS)
One more tax saving vehicle which is not available to NRI taxpayers is Investment under RGESS under section 80CCG. Deduction under section 80CCG or Rajiv Gandhi Equity Savings Scheme was introduced effective assessment year 2013-14. The main purpose behind this deduction was to increase retail investor participation in equity markets. Upon satisfaction of certain conditions the deduction allowed is lower of 50% of the amount invested in equity shares or Rs 25,000. This deduction is not available to NRIs.


Deduction for the disabled and handicapped
Deduction for the disabled and handicapped under section 80DD, 80DDB and 80U is also not available to NRI income tax payers.  Deduction under this section is allowed for maintenance including medical treatment of a handicapped dependent (a person with a disability as defined in this section) is not available to NRIs tax payers.

Similarly, the deduction for disability where the taxpayer himself suffers from a disability as defined in the section 80U is only allowed to resident taxpayers.


National Saving Certificates
Similarly, NRI cannot make investments in National Saving Certificates and Post Office deposit schemes.

Here is complete list of some tax-saving schemes not available to NRIs for deductions and exemption purpose:

  • Investment in PPF is not allowed.
  • (NRIs are not allowed to open new PPF accounts, however, PPF accounts which are opened while they are a Resident are allowed to be maintained.)
  • Investments in NSCs
  • Post Office 5 Year Deposit Scheme
  • Senior Citizen Savings Scheme.
  • Sukanya Samridhi Yojna
  • Investment under Rajiv Gandhi Equity Saving Scheme
  • Deduction for the disabled and handicapped under section 80DD


and here is a nice slide which you can share and keep it handy:

5 Tax Saving Schemes not available to NRIs


That's all on tax saving options which are not available for NRI tax payers. Anyway, no need to disappoint as there is enough tax saving option still you can use and you should use to brign down your tax liablities. The most important one is NRE fixed deposit, where interest earned is completely tax-free, not even included in your taxable income. You can still use NPS, ELSS and other 80C tax saving option to save income tax in India.



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