Taxability on Non-Resident Indian

Taxability of Non-Resident Indian
1Comprehensive Solutions for Complex Matters

Index
Comprehensive Solutions for Complex Matters 2
 Meaning of Non Resident Indian (“NRI” / “NR”) and PIO
 Section 6 – Residential Status
 Deemed Residency
 Section 5 – Scope of Income
 Taxability of Incomes
 Deductions under Chapter VI-A
 Special Provisions
 Income Tax Slab Rate
 Points to remember while opting for new tax regime
 FAQs
 Case Study

Meaning of Non-Resident Indian (“NRI” / “NR”) and PIO
 Non-Resident means an individual being, citizen of India or a person of India Origin, who is not a
"resident". Thus, in order to determine whether an Individual is a non-resident or not, we have to
compute his/her residential status as per section 6 of Income Tax Act, 1961.
 Person of Indian Origin (PIO) shall be deemed to be a person of Indian origin if he/she, or either of
his/her parents or any of his grand-parents, was born in undivided India.

Section 6 - Residential Status
Residential Status
Resident
Ordinarily Resident (ROR)
Not Ordinarily Resident
(RNOR)
Non-Resident (NR)

Contd. …..
a) An individual is deemed to be a resident in India in any previous year, if he/she satisfies at least one of the basic
conditions:
1. Stay in India for a period of 182 days or more in a financial year; or
2. Stay in India for 60 days or more in a financial year and 365 days in the immediately preceding 4 financial
years.
b) If such individual is citizen of India or a person of Indian origin, then the period of 60 days mentioned above in
clause 2 above shall be replaced with 182 days.
c) With effect from Finance Act 2020, the period of 182 days mentioned in point no. (b) above is replaced with
120 days in case of Deemed Residency which is being discussed in upcoming slides.
d) If an individual doesn’t satisfy any of the aforesaid basic conditions, then such individual shall be qualified as
Non-Resident (NRI / NR).

Contd. …..
Resident and Ordinarily Resident (ROR)
Once an Individual is qualified as Resident, then the next step is to determine that whether he/she is ROR or
RNOR. He/she will be a ROR if he/she meet the following both additional conditions:
a) He/she has been resident in India (means fulfilling basic conditions) in at least 2 financial years out of
immediately preceding 10 financial years; and
b) He/she stayed in India for a period of 730 days or more during immediately preceding 7 financial years.
Resident and Not Ordinarily Resident (RNOR)
If an Individual is unable to fulfil both additional conditions, he would be deemed as RNOR.

Contd. …..
Summary – Rule of Residence
(a) Resident and Not Ordinarily Resident (RNOR) - Must satisfy at least one of the Basic Conditions and one or
none of the Additional Conditions.
(b) Resident and Ordinarily Resident (ROR) - Must satisfy at least one of the Basic Conditions and both
Additional Conditions.
(c) Non-Resident (NR) - Must not satisfy any of the Basic Conditions.

Contd. …..
Due to Corona Virus pandemic outbreak, the Indian Government has taken various measures such as declaring a
nationwide lockdown, implementing strict quarantine requirements, suspension of international flights etc, due
to which many individuals who visited India during the FY 2019-2020 & intended to leave India before 31st March
2020, couldn’t leave and forced to extend their stay in India so in such cases an individual who came to India
before 22nd March 2020, his/her following days shall be excluded for determining the residential status in India:
S.no. Category of person Exclusion period
1. Unable to leave India before 31st March 2020 22nd March to 31st March 2020
2. Quarantined in India on account of Covid-19 on or after 1st March 2020 and
- departed on an evacuation flight; or
- unable to leave India
on or before 31st March 2020
Period beginning of quarantine to:
- Departed date; or
- 31st March 2020
3. Departed on an evacuation flight on or before 31st March 2020 22nd March 2020 to departure date

Deemed Residency
In Finance Act 2020 (effective from April 1, 2020), a new rule have been brought in by way of “Deemed
Residency” to determine the residential status of NRIs which says that:
An Indian citizen or PIO shall be deemed to be Resident of India if –
(i) his/her total income (defined as taxable income), other than income from foreign sources, i.e. income
accruing in India exceeds INR 15 lakhs during the relevant financial year; and
(ii) he/she is not liable to tax in any other country or territory (other than India) by reason of his domicile or
residence or any other criteria of similar nature
Under the Deemed Residency, the residential status of an India citizen / PIO shall be "Not Ordinarily
Resident (NOR)" and shall be taxable in India accordingly.
Note: The aforesaid rule is not applicable for OCI (Overseas Citizen of India) card holders or foreign citizens.

Contd. …..
Thus, an NRI whose total income (i.e. taxable income) in India is up to INR 15 lakhs during the financial year will
continue to remain NRI if his/her stay in India does not exceed 181 days.
Now, besides monitoring the number of days present in India, the Indian Citizen / PIO is also required to keep
tab of his / her Indian taxable income. This is because once taxable Indian income exceeds INR 15 lakhs, then
provisions related to stay exceeding 120 days instead of 182 days shall be applicable.
It is important to note that since dividends distributed by Indian companies is now taxable in the hands of the
shareholders, it would form part of taxable income. On the other hand, since interest on FCNR and NRE deposits
are exempt, it will not form a part of taxable income.

Contd. …..
For example:
An NRI, whose taxable income exceeds INR 15 lakhs stays in India for 120 days or more, then such an individual
further needs to check whether his stay in India is 365 days or more in the immediately preceding 4 financial
years.
Let us assume a non-resident visits India in FY 2020-21 (having taxable income in the financial year exceeding
INR 15 lakhs) and stays for say 130 days, then he has to check that whether during the preceding 4 financial
years (i.e. FY 2019-20, 2018-19, 2017-18, 2016-17) he was in India for total of 365 days or not. If yes, then he
will be treated as a resident individual for income tax purposes and will be treated as "Resident but Not
Ordinarily Resident (RNOR)". This would be a relief as their foreign income (i.e., income accrued outside India)
shall not be taxable in India.

Contd. …..
For example:
In case of NRIs who are residing in UAE, Saudi and certain countries (which do not levy personal income tax) and
have taxable Indian income of more than INR 15 lakhs, a question arises whether they can be treated as "liable to
tax in any other country or territory by reason of his domicile or residence or any other criteria of similar
nature".
In the context of the Double Tax Avoidance Agreement (DTAA) between India and UAE, the Indian judicial and
advance ruling authorities have taken a view that " liable to tax" need not be equated with "payment of tax". As
per Indian UAE Tax Treaty and the Protocol, a person who stays in UAE for more than 182 days in a year is
eligible to get a " tax residency certificate" and is treated as tax resident of UAE. Thus, in view of the “Deemed
Residency” conditions, such persons would not be treated as Deemed Resident of India and need not to pay
income tax in India.

Section 5 - Scope of Income
Section 5 define the scope of income which is taxable in India in accordance to residential status.
S.
No.
Particulars Resident
Ordinary
Resident (ROR)
Resident Not
Ordinary Resident
(RNOR)
Non Resident
(NR)
1 Income received in India Taxable Taxable Taxable
2 Income deemed to be receive in India Taxable Taxable Taxable
3 Income accrues or arises in India Taxable Taxable Taxable
4 Income deemed to accrues or arises in India Taxable Taxable Taxable
5 Income accrues or arises outside India Taxable Not Taxable Not Taxable
6 Income accrues or arises outside India from
business/profession controlled/set up in India
Taxable Taxable Not Taxable
7 Income which has no relation with India Taxable Not Taxable Not Taxable
8 Foreign Assets disclosure requirement in ITR Yes No No
For example: Income from a house property situated in India, capital gains on transfer of asset situated in India,
income from fixed deposits or interest on savings bank account in India are examples of income earned or
accrued in India. Thus, these incomes are taxable for an NRI.

Taxability of Incomes
There are five heads of income under which a Non-Resident can earn their Income.
Income under the head Salary
Income under the head House Property
Income under the head Business / Profession
Income under the head Capital Gain
Income under the head Other Sources

Contd. …..
1. Income under the head Salary
 Income is taxable under the head of salary if there is employer - employee relationship;
 Salary Income is taxable on due or receipt basis, whichever is earlier;
 If Salary is received by partner from partnership firm, then such partner salary is taxable under the head
PGBP not under the head Salary;
 Salary includes Wages, Allowances, Bonus, Leave Encashment, Annuity or Pension, Gratuity, Commission,
Perquisites and Profit in lieu of salary;
 Salary also includes employer's contribution to the recognized provident fund in excess of 12% of salary
and employer's contribution to NPS;
 As per the amendment vide Finance Act 2020, if the employer's contribution to EPF, NPS and
superannuation fund on aggregate basis exceeds Rs 7.5 lakh in a financial year, then excess amount will be
taxed in the hands of an employee;

Contd. …..
2. Income under the head House Property
A house property can be an office, a shop, a residential property and some land attached to the building like
a parking lot. Any rental income earned from any building is taxed under the head House Property.
The rental income earned by a Non-Resident from the house property situated in India shall be taxable in
India and the calculation of such income will remain same as for a resident like they can avail the benefit of
standard deduction of 30%, municipal taxes, interest deduction in case of home loan etc.
3. Income under the head Business and Profession
The profit & loss earned by an individual from the business/profession carried at any time during the
financial year is taxable under the head Business & profession. Any income earned by an NRI from a
business controlled or set up in India is taxable to the Non-Resident in India.

Contd. …..
4. Income under the head Capital Gain
Any capital gain on transfer of capital asset which is situated in India shall be taxable in India like gain on sale
of shares & securities, house property etc.
5. Income under the head Other Sources
Income from Other Sources covers such income which does not fall under any other heads of income.
For Example:
• Dividend
• Interest income from Saving Accounts
• Interest income from Fixed deposits Account
• Interest income from NRO Account maintained in India

Deductions under Chapter VI-A
The Deductions under Chapter VI-A is prescribed under section 80C to 80U of the Income Tax Act, 1961. We have
summarized such deductions only which are available to NRI. However, it must be kept in mind that the
deduction will be available for the investments done in India only, thus no deduction will be available for
investments or any premiums paid outside India.
 Deductions u/s 80C :
 Life Insurance Premium: The policy must be in the NRI’s name or in the name of his/her spouse or any
child’s name (child may be dependent/independent, minor/major, or married/unmarried). The premium
must be less than 10% of sum assured.
 Children’s tuition fee payment: Tuition fees paid to any school, college, university or other educational
institution situated within India for the purpose of full-time education of any two children (including
payments for play school, pre-nursery and nursery).

Contd. …..
 Principal re-payments on loan for the purchase of a house property: Deduction is allowed for repayment
of loan taken, stamp duty and registration fees paid for buying or constructing residential house property.
 Investments in ELSS: ELSS has been the most preferred option as it allows to claim a deduction under
Section 80C. It also offers the EEE (Exempt-Exempt-Exempt) benefit to taxpayers and simultaneously offers
an excellent opportunity to earn as these funds invest primarily in the equity market in a diversified manner.
The maximum limit of deduction u/s 80C will be allowed for INR 1,50,000
However, there are certain investments which are not allowed to NRI’s like
 Investment in Public Provident Fund (PPF)
 Investments in NSCs
 Post office 5-year deposit scheme
 Senior citizen savings scheme

Contd. …..
 Deduction u/s 80D : Deduction is available for the premiums paid for health insurance in India.
Particulars Deduction Limits Total
Deduction
Allowed
Exemption
Limit
Health Checkup
included
Self and family 25,000/- 5,000/- 25,000/-
Self and family + Parents 50,000/- 5,000/- 50,000/-
Self and family + Senior Citizen Parents 75,000/- 5,000/- 75,000/-
Self and Family (Self / Spouse Senior Citizen) +Senior Citizen Parents 100,000/- 5,000/- 100,000/-
 Deduction u/s 80E : This deduction is allowed for the interest paid on education loan taken for higher
education of NRI, spouse or children. The deduction is available for a maximum of 8 years or till the interest is
paid, whichever is earlier. The deduction is not available on the principal repayment of the loan.

Contd. …..
 Deduction u/s 80G : NRIs are allowed to claim a deduction for donations for social causes under Section
80G. However, there are certain funds to whom donations given are eligible under this section but any
deduction made in cash exceeding for INR 2,000 is not eligible for deduction.
 Deduction u/s 80TTA : NRIs can claim the deduction on income from interest on savings bank account up to
a maximum of INR 10,000 like resident Indians.
 Deduction u/s 80DD, 80DDB, 80U for medical treatment of handicapped or dependent or any kind of
disability is not available to NRI’s

Special Provisions
How can NRIs Avoid Double Taxation?
NRIs can avoid double taxation (getting taxed on the same income twice in the country of residence and in
another country) by seeking relief from DTAA between the two countries. Under DTAA, there are two methods to
claim tax relief –
(a) exemption method
(b) tax credit method
- In Exemption method, NRIs are taxed in only one country and
exempted in another.
- In Tax credit method, where the income is taxed in both countries,
tax relief can be claimed in the country of residence.

Contd. …..
Exemptions on Long Term Capital Gain for an NRI
Long-term capital gains (when the property is held for more than 2 years) is taxed at 20%. In this case, long-term
capital gains earned by NRIs are subject to a TDS of 20%.
NRIs are allowed to claim exemptions under Section 54, Section 54EC, and Section 54F on long-term capital gains
as under and claim the benefit at the time of filing ITR & claim refund of TDS deducted on Capital Gains:
a) Exemption under Section 54 is available on long-term capital gains on sale of a house property.
b) Exemption u/s 54EC is available on long-term capital gain on sale of any assets in which exemption is available
to the least of amount invested; or amount of capital gain; or amount invested in bonds up to INR 50 lakhs issued
by NHAI or REC.
c) Exemption under Section 54F is available on sale of any asset other than a house property.

Contd. …..
Special provisions related to Investment Income
When an NRI has invested in certain Indian assets, he/she is taxed at 20%. If such special investment income is
the only income of NRI during the financial year and TDS has been fully deducted on such income, then it is not
necessary for the NRI to file income tax return in India.
The income derived from the following Indian assets acquired in foreign currency qualify for special treatment:
i. Shares in a public or private Indian company
ii. Debentures issued by a publicly-listed Indian company (not private)
iii. Deposits with banks and public companies
iv. Any security of the central government
v. Other assets of the central government as specified for this purpose in the official gazette

Contd. …..
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Non-Resident Rupee Account (NRE) and Non-Resident Ordinary Rupee Account (NRO)
 NRE account is an Indian rupee-denominated account which can be opened in the form of savings, current,
recurring, or fixed deposits accounts in India. Also, the foreign currency deposited into the account is
converted to into INR currency. The interest earned from NRE account is tax-free.
 NRO account is a savings or current account held by NRIs in India to manage their income earned in India.
Account-holders can deposit and manage their accumulated rupee funds without any hassle. The account
allows you to receive funds in Indian or Foreign currency. The interest earned from NRO account is taxable.
 Importance of opening NRO and NRE Account:
No NRI's are allowed to have saving accounts in their name in India. It is mandatory to convert all your
savings (money earned abroad) to NRE or NRO account. It help them to send money they earn abroad to
India at any point of time and retain their income from India (via any assets) in the home country itself.

Income Tax Slab Rate
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Income Tax Slab Rate for Individuals
Taxable Income (Rs.) Old Tax Regime New Tax Regime
(w.e.f FY 2020-21)
Up to 250,000 Nil Nil
From 250,001 to 500,000 5% 5%
From 500,001 to 750,000 20% 10%
From 750,001 to 1,000,000 20% 15%
From 1,000,001 to 1,250,000 30% 20%
From 1,250,001 to 1,500,000 30% 25%
Above 1,500,000 30% 30%

Contd. …..
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Notes:
1. In case of Senior Citizens (60 years old or more but less than 80 years old), the minimum exemption limit is Rs.
300,000 against Rs. 250,000;
2. In case of Super Senior Citizens (80 years old or more), the minimum exemption limit is Rs. 500,000 against Rs.
250,000;
3. Surcharge shall be levied additionally as under:
- If net income exceeds Rs. 50 lakhs but less than Rs. 1 crore - 10% of income tax
- If net income exceeds Rs. 1 crore but less than Rs. 2 crore - 15% of income tax
- If net income exceeds Rs. 2 crore but less than Rs. 5 crore - 25% of income tax
- If net income exceeds Rs. 5 crore - 37% of income tax
4. Health & Education cess shall be levied additionally @ 4% of total tax liability (inc. surcharge)

Points to remember while opting for new tax regime
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(a) Under new tax regime (Section 115BAC), an individual shall not be entitled to any deductions (inc. interest on
borrowed capital for self-occupied house property) / exemption under section 10 (like HRA, Children Education
Allowance, LTA etc), Standard deduction, deduction under chapter VI-A [except u/s 80CCD(2) i.e. employer
contribution on account of employee in NPS and 80JJAA i.e. for new employment];
(b) An individual has to inform to its employer that whether he/she would like to follow old tax regime or new tax
regime so that accordingly, the employer can make the withholding tax / TDS and deposit with Government
Treasury. However, declaration given by individual to employer for the purpose of TDS will not be treated as
option exercised by an individual for the purpose of income tax return filing;
(c) Option has to be exercised by an individual on or before the due date of filing return of income for FY 2020-21
relevant to AY 2021-22 which can be different than declaration given to employer;
(d) The option shall be exercised for every financial year where the tax payer has no business income;
(e) In case a taxpayer has a business income and exercised the option, he/she can withdraw from the option only
once. A business taxpayer withdrawing from the optional tax regime has to follow the regular income tax slabs;
(f) Provisions of alternate minimum tax (AMT) shall not be applicable to individual exercising this option.

FAQs
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Am I Required to File My Income Tax Return in India?
NRI or not, any individual whose income exceeds INR 2,50,000 is required to file an income tax return in
India. Please note that the maximum exemption limit of INR 3,00,000 in case of senior citizens and INR 5,00,000 in
case of super senior citizens is only available to residents not to non-residents.
When is the Last Date to File Income Tax Return in India?
July 31st is the last date to file income tax return in India for NRIs.
Do NRIs Have to Pay Advance Tax?
If tax liability exceeds Rs 10,000 in a financial year, then NRIs are required to pay advance tax. Interest under
Section 234B and 234C is also applicable when advance tax is not paid.

Case Study
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i. Resident Individual on a Temporary Foreign Assignment
Rahul worked out of Singapore on a temporary assignment for 4 months and earned in Singaporean Dollars during
that time. He got this income credited to a bank account here in India. He has returned back home now. Now,
question is that how should he file his income tax return?
Ans: Rahul’s taxes for this year will depend on his residential status. Since Rahul has not been outside of India for
more than 182 days, he will be considered a resident. He will be required to file his income taxes in India this year.
This will also include his salary earned during the foreign assignment in Singapore. If the assignment extends to
more than 182 days, Rahul’s residential status will change and he will be required to pay taxes only on the Indian
income earned thus far. Here, note that Rahul’s foreign income credited to an Indian bank account is taxable in India.
ii. Resident Individual recently moved abroad
Prashant moves to the US on a new assignment. He gets his US income credited to an NRE account in India. He
continues with his FD investments and has some money put away in a savings account in India. He just received
Form 16 from his Indian employer. Should he file his returns this year in India?
Ans: NRI or not, every individual must file a tax return if their income exceeds INR 2,50,000. But note that NRIs are
only taxed for income earned/collected in India. So, Rahul will pay taxes on income earned while in India, and
income accrued from FDs and savings account.

Contd. …..
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iii. Living in a Foreign Country
It’s been 3 years since Arjun moved to the US. He has his money invested in a savings account and FDs in India. He
has bought an apartment and gave it on rent for INR 35,000 per month. He gifts his parents a car and transfers INR
10,000 every month to help with their household expenses during the year. He also transfers INR 20,000 in his
father’s account to meet the cost of the insurance policy he has purchased for his parents.
Ans: Arjun’s gift to his father and money transfer of Rs 10,000 to his mother are exempt from tax. Regarding the
insurance expenses on his parents, Rahul can claim a deduction under Section 80D of Rs 20,000, since his father is
over 65 years of age. He will be required to file a tax return in India as his gross income exceeds Rs 2,50,000.
iv. A resident with Global Income
Shreya returned to India in 2010 after living in London for more than 5 years. The French company, she worked for,
has retained her as a consultant and sends her fees in pounds. Her salary is credited to a bank account there, and
she pays tax on it in the UK. Does Shreya needs to pay tax in India on such income?
Ans: Shreya is a resident of India and a resident has to pay tax on their global income. Thus, all of Shreya’s income,
including the fee that she earns in foreign currency will be taxable in India as per income tax slab rates. If Shreya has
already paid tax on the foreign income in the UK, then she can claim the benefit under DTAA based on the relevant
provisions of the DTAA between the two countries, and accordingly she will be saved from getting taxed twice.

Our Team
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Founder and CEO
Alok Kumar Agarwal
Director
Deepak Kumar
Vice President
Amit Kumar Rai
Vice President
Mayank Kumar
Asst. Vice President
Tania Kakar
Director
Anju Agarwal
Director
Shailendra Kumar Mishra
Vice President
Mayank Singal
Asst. Vice President
Ankush Goyal
Vice President
Ashok Gupta
Director
Antaryami Nayak
Vice President
Deepak Maini
Sr. Consultant
Rakesh Mishra
Operational Head
Niten Agrawal

Office Locations
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New Delhi –
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Phone:
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Thank You for your patience and supportThank You for your patience and support
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Taxability on Non-Resident Indian

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