NRI / Foreign Income Tax FAQs

Deductions Allowed

1. Life insurance premium payment
2. Tuition fee payment
3. Principal repayments on loan for the purchase of house property
4. ULIPS or unit-linked insurance plan
5. Home Loan Interest
6. Deduction under Section 80D
7. Deduction under Section 80E
8. Deduction under Section 80G
9. Deduction under Section 80TTA

Deductions not allowed to NRIs

1. Investment in PPF
2. Investments made in NSCs
3. Post Office 5 Year Deposit Scheme
4. Senior Citizen Savings Scheme
5. Section 80CCG, 80DD, 80DDB, 80U

Considering the interest income in NRE/ NRO Account, NRI can file their return in India. Income of NRE Account shall be exempt whereas, Income in NRO Account shall be taxable.

1. If the Tax deducted at source is more than the actual tax liability of the NRI, then refund can be claimed by the NRI only after filling return along with interest.
2. If the NRI has incurred any loss on the sale on sale of investments (either short term or long term) than NRI can carry forward the losses to future years.
3. Having details of the documentation of all the Income and Assets in India and in Foreign Country will help the NRI in complying with the Repatriation Rules for Income and Assets held in India and also when the NRI return to India.

1. Interest on NRE & FCNR (Foreign Currency Non- Repatriable) account
2. Interest on government issued savings certificates, notified bonds
3. Dividends from shares of domestic companies
4. Long term capital gains from listed equity shares and equity- oriented mutual funds

The treatment depends on the type of capital gain

1. Short-Term Capital Gains (STCG) on the sale of equity/equity mutual funds:
   
   Set off against the basic tax exemption limit is NOT available to NRIs for short-term capital gains of equity shares/equity mutual funds
   
   Example:
   If the taxpayer (NRI) made short term capital gains of Rs.2, 00,000 on the sale of equity shares and have other income of Rs.1, 00,000 in India; taxpayer will have to pay tax at 15% on the gain of Rs.2, 00,000. Taxpayer tax liability will be Rs.30, 000 (before surcharge and cess)
   
   
2. Long Term Capital Gains (LTCG) on the sale of equity/equity mutual funds:
   
   LTCG in excess of Rs.1, 00,000 per financial year is taxed at 10% (According to the budget 2018). Residents can set-off LTCG against basic tax exemption limit but non-resident can’t avail the basic limit.
   
   
3. Short Term Capital Gains (STCG) on the sale of Debt/Gold/Real Estate etc.
   
   Short term Capital Gains income will be taxed as per income tax slab rates Set off against basic tax exemption limit short term capital gains of any capital asset (other than equity) is permitted for both resident and non-residents.
   
   Example:
   Short term capital gains on the sale of debt funds/property Rs.3, 50,000 and other income of Rs.50, 000 and total income for the year is Rs.4, 00,000(including short term capital gains). The entire income will be taxed as per income tax slab. So the taxpayer has to pay a tax of Rs.7,500 (irrespective of residential status).
   
   
4. Long Term Capital Gains (LTCG) on sale of Debt/Gold/Estate etc.
   
   The rate of taxation is 20% after indexation or 10% without indexation depending upon the type of asset. Residents can set-off LTCG against basic tax exemption limit but non-resident can’t avail the basic limit.

In case Non-resident Indians (NRIs) who live abroad but also earn an income in India, there is a possibility that the income arising in India would attract tax in India as well as in the country of the NRI's residence. This means that taxpayer would have to pay tax twice on the same income. To avoid such double payment of tax, income tax provisions were made in the name of Double Tax Avoidance Agreement (DTAA).

The benefits of DTAA are lower withholding tax (tax deducted at source or TDS), exemption from tax, and credits for taxes paid on the double-taxed income that can be encashed at a later date.
Refer TDS On Payments to Non-Resident Indians (NRIs) to know more.

India has DTAA with over 80 countries. The major countries with which it has signed the DTAA are the United States of America (USA), the United Kingdom (UK), the UAE, Canada, Australia, Saudi Arabia, Singapore and New Zealand.

DTAA is calculated in 2 ways:

1. Tax Credit Method
2. Exemption Method

Tax Credit Method:

An example calculation from such method is

Exemption Method:

An example calculation from such method is