Saturday, August 26, 2017

10 Points NRIs should know about Income tax in India

Many NRIs are not aware of income tax laws in India and doesn't know whether they have to file income tax returns in India or not. Sometimes they also wonder, do they have to include income earned in the USA as well or only income earned in India would be taxable? Other doubts which come in minds is whether interest earned on NRE, NRO, and FCNR deposits should be counted as taxable income or not. What about long term equity gains?

Many others are also wondered about tax implication due to remittance e.g. whether they need to pay tax when they send money to India from overseas. Though there are so much to learn about income tax in India even for NRIs, I'll share some of the useful points which I believe every NRI should know. You can add few more important points if you want but these are essential things which both NRI and PIO should know and understand.

10 Points NRIs should know about Income tax in India

Here are some of the useful points related to income tax every NRIs should be aware of while filing income tax return.

1) It's not mandatory for an NRI to file income tax return in India.  Especially if all his income is generated from the fixed deposit or other investments where TDS is already deducted. See this article to learn more about it.

2) NRIs should file income tax return only if their India income i.e. those generated in India e.g. interest income earned on fixed deposits, rental income, dividend and others exceed the basic exemption limit of 2.5 lakh.

3) While calculating taxable income, interest earned on NRE and FCNR deposit is not counted. For example, even if you have earned 5 lakh as interest in NRE fixed deposit your taxable income is zero for that financial year, provided you don't have any other income in India.

4) Similarly, income generated due to long term capital gain as part of the stock or mutual fund selling is also not counted towards taxable income.

5) Though, Interest earned on NRO fixed deposit is counted towards income and you need to pay tax on that. By default, TDS is deducted from interest earned on NRO deposits at the rate of 30.9%.

6) The only way to claim the refund for the money deducted in TDS is by filing income tax return. For example, if you earn 1 lakh Rs as interest in FY 2016-17 on NRO fixed deposit, 30,900 will be deducted as TDS. Suppose, you don't have any other income in India and in this case 1 lakh is still less than basic exemption limit of 2.5 lakh, hence you don't need to pay any tax. You can claim a refund of 30,900 by filing income tax return. This can be done online and you should do it to get your money back.

7) Rental income cannot be deposited into NRE account because NRE account doesn't accept INR, you must open NRO account to accept rental income.

8) When you transfer money from overseas to India to your close relatives e.g. wife, parents and children that are considered as a gift and they are not subject to income tax. Though any interest earned by that amount is considered as income and they are subject to tax. For example, if you transfer 5 lakh INR which your wife invested in bank FD @8% per annum and which result in 40K INR as interest then that would be clubbed to her other income and subject to tax.

9) Only Indian income is subject to tax in India for NRIs and PIOs and needs to be mentioned in ITR. The foreign or global income of an NRI or a PIO is not taxed in India. This is where Indian laws are different with the US, where the global income of US citizen is taxed in states.

10) When an NRI returns to India for good, he can still be RNOR for a couple of years, depending upon how long he has spent outside India in last 10 years and can enjoy same tax reliefs enjoyed by NRI i.e. interest earned on NRE fixed deposit, FCNR fixed deposit and foreign income is not taxed in India.

10 Points NRIs should know about Income tax in IndiaThat's all about some important points about income tax in India every NRI should know.  If you are someone who has just moved to abroad then you don't need to worry about these just now but you will find it useful next year when you have to file your income tax return in India.

Other Income tax related articles for NRIs
Does Interest earned on NRE account be taxable in India?
Does Interest earned on NRO fixed deposit is taxable in India?
When does an NRI need to file income tax in India?
Does overseas income of NRI is subject to tax in India?
Do NRIs need to declare their foreign bank account while filing tax in India?
Does Aadhaar mandatory for filing tax in India for NRIs?

Thanks for reading this article, if you find this article useful then please share with your friends and colleagues. If you have any suggestion or feedback then please drop a comment.


  1. Hi,

    I have a related question on the following line in point Point3:

    "......even if you have earned 5 lakh as interest in NRE fixed deposit your taxable income is zero"

    Should we mention the amount of interest earned fron NRE FDs during the Income Tax e-filling?



    1. Hello @Anirben, I don't think you need to because it's not a taxable income, but if you have doubt, I suggest to consult a charted accounted.

  2. I guess point#4 is no more valid now as long term gains are also taxable.

    1. Certainly, that's a bad move but, will reduce participation of retail fund on Equity. There is no incentive for long term investment from government.