Tax Saving Instruments For Global Indians (NRIs)

The major difference between tax paid by a Resident Indian and a Non-Resident Indian is that NRIs only have to pay tax for their 'Indian Income' and their foreign income

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By Chavvii Prabhakar


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Non-Resident Indians are liable to pay tax for any income that is earned or accrued in India. This is irrespective of whether the income is directly or indirectly received by the Non-Resident Indian in India or is accrued or deemed to have been accrued in India. An NRI will have to pay tax for any income from business transactions and also income generated from assets and investments in India.

The major difference between tax paid by a Resident Indian and a Non-Resident Indian is that NRIs only have to pay tax for their 'Indian Income' and their foreign income, that is income earned and accrued abroad, is completely exempted from Income tax in India.

Below are five Tax Savings Instruments that can help NRIs to increase their tax efficiency in India

1. Utilizing Deductions: Like any other Indian taxpayer, NRIs are also eligible for availing deductions of INR 1.5 lakh and INR 50k under Section 80C and Section 80CCD (1b) (For NPS investments) respectively for tax saving but they cannot avail the basic deductions available by investing in social schemes like Opening a PPF account, Senior Citizen Saving Scheme or NSC (National Saving Certificates).

They also cannot opt for medical benefits and deductions available in self-medical expenses, treatment of a family member, self-disability, Income from royalty for tax saving.

2. Obtaining PAN Number: Income beyond a certain threshold is subjected to TDS. If an NRI investor fails to furnish his PAN while making an investment in India, he will end with chances of getting charged by a higher TDS amount (Section 206AA). So to avoid such Higher TDS, one should apply for PAN even if the income is below the exemption limit. Also, for claiming an income tax refund, PAN number is mandatory.

3. Maintaining NRI Status as Per Tax Norms: Tax liability on an individual is generally computed by his residential status and income. As the foreign income of NRIs is not taxable in India, they should plan their visits to India in such a way that their NRI status does not change.

4. Taking Advantage of Provisions: NRI should take advantage of provisions issued for long-term assets purchased in foreign currency. For capital gains received against sale or transfer of foreign assets, no deduction is allowed in Section 80 but certain exemptions can be worked on above profit (under Section 115F) when it is reinvested back to shares or debentures of an Indian company, bank deposits and NSC VI and VII investments.

5. Paying Interest on the Home Loan: NRIs can claim a deduction under Section 24 of paying up to INR 2 Lakh of interest on the loan for buying a house in India. Also, the property tax paid on such house or property is also eligible to get exempted as per tax bracket. This is a good tax saving option for NRIs

Also, NRIs who are selling house property which is situated in India have to pay tax on the Capital Gains. Long-term capital gains are taxed at 20per cent and short-term gains shall be taxed at the applicable income tax slab rates for the NRI based on the total income which is taxable in India for the NRI.

Chavvii Prabhakar

Co-founder & CEO, Global Indian Solutions

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