It is important for an NRI to know how his taxable income in India shall be computed in order to file the income tax return. The first step in the computation of the total income is the computation of income of each head separately. After making the specified deductions and taking into account allowances allowed in computing income under such head of income. The income under each head is totalled and the total of this income is known as the gross total income. Any income which is completely exempt from tax is not to form part of the gross total income. Certain deductions in the matter of investment in Bank deposits, etc., are allowed from the gross total income. The balance is the taxable income of the Non-resident Indian.
If you are an NRI and you receive your salary in India or someone else receives your salary in India, on your behalf, then that salary income is taxable. If you receive your salary directly to an Indian account then also your income is taxable.
Income from salary will be considered to accrue or arise in India if your services are rendered in India. So even though you may be an NRI, but if your salary is paid towards services provided by you in India, it shall be taxed in India.
So a non-resident will have to pay tax on those salary incomes that are received or accrued in India.
Example: A person receives a salary in India for services rendered in Japan, then this salary will be taxable in India. And the salary income will be taxable even when a person receives the salary in Canada for the services rendered in India because here the income arose in India even though it is received in Canada.
Income from property, whether residential or commercial, situated in India is taxable as an NRI. The calculation of such income shall be in the same manner as done for a resident. This property may be rented out or lying vacant will be taxable.
An NRI is allowed to claim a standard deduction of 30%, deduct property taxes, and take benefit of an interest deduction if there is a home loan. The NRI is also allowed a deduction for principal repayment under Section 80C. Stamp duty and registration charges paid on the purchase of a property can also be claimed under Section 80C.
The procedure for computation of income from house property is same as it is for residents.
Gross Annual Value (Rent received or expected rent (Nil in case of self-occupied property))
Less: Municipal or other local taxes paid on the property
= Net Annual Value
Less: Deductions u/s 24
Statutory deduction at 30 percent of the Net Annual Value (NAV)
Interest paid on home loan
= Income or loss under the head House Property
Example: An NRI owns a residential house in Delhi. He has rented it while he himself stays and works in the USA. So all the rental payments received by the NRI from the tenant for the rented house will be taxable in India. And when a tenant pays rent to his NRI landlord, the tenant needs to deduct TDS @ 30% and submit form 15 CA online to the Income-tax department.
Any income earned by an NRI from a business that is controlled or set up in India shall be taxable in India. So, if you are getting income through any business in India, the same shall be taxed in India.
Any income from a profession set up in India where services are provided in India or income accrues in India, the same shall be taxable in India.
4. Income from Capital Gains
Any profit or gain (capital gain) arising from transfer of capital assets situated in India shall be taxable in India. Capital gains on investments in India in shares, securities shall also be taxable in India.
5. Income from Other Sources
Interest income earned on NRE and FCNR account is tax-free. Interest on NRO account is fully taxable.
As a Non Resident Indian, all the incomes that are either received in India or have accrued in India shall be taxable in India.
Some times NRIs are subjected to double taxation – once in India and again in the country of their residence. It depends on their country of residence. If the Indian government has a Double Tax Avoidance Agreement (DTAA) with that country, the NRI will be spared from paying tax twice. Many countries have such treaty with India.
To claim the DTAA benefit, firstly, it needs to be ascertained whether a particular income is taxable in India or not as per Indian domestic tax law. Once it is determined that the income is taxable in India, it has to be checked whether India has signed a comprehensive DTAA with the country of residence (India has signed around 90 such DTAAs, including USA, UK, UAE, Singapore) of NRI and the NRI must furnish a Tax Residency Certificate (TRC) issued by the tax authorities of that country (in certain case also furnish a self-declaration in Form 10F).
Depending on the type of income, relief under DTAA can be claimed (income may be entirely exempt, or may be taxable at a lower rate). If income is taxable even under the DTAA, the NRIs shall have to pay tax in India and claim the credit of such taxes paid against the tax liability in their country of residence subject to certain conditions.
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