All you need to know about Income tax and NRIs
The government is upping the ante against the tax evaders. Recently, a slew of measures has been announced to check the misreporting of income by the individuals. In the light of the new developments, it certainly has become the most for all to clearly understand the tax liabilities as well as abide by these accordingly. We need to face the wrath of the income-tax department in the case we fail to do the same. Things do become more complicated in case you are non-resident and aren’t well-versed with the provisions. Keeping this thing in mind, we do answer some of the questions that are pertaining to the tax liabilities.
What decides the tax liability?
To ascertain the tax liability, the residential status is determined at first. You need to pay the taxes depending on the residential or housing status. Under this provision of the law, you could be-
• A resident
• A resident but not the ordinarily resident of India (RNOR)
• A non-resident Indian (NRI)
Does the residential status changes once in a lifetime?
The answer to this is no. under this provision of the law, the housing status of the taxpayer is determined each year. In the beginning, a person could be the resident, his status may change to being the non-resident. In case the Non-resident Indian decides to come back to the country, his status would change to the resident but not the ordinarily resident. Certainly, it is an ever-changing process.
What is the status if I have recently returned to India?
For continuous 3 financial years after the return to the country, you enjoy the status of being the resident but not the ordinary Indian. This basically means our taxation liabilities will somewhat be similar to that of the Non-resident Indians.
Do I need to pay the taxes if I am a non-resident Indian (NRI)?
You need not pay the taxes in India in the case if you are not earning anything here. In case, you are making a specific profit in India (even if it is through lying on your savings account which is known as the passive income), that specific part of the income will be taxed in India while the remaining parts of the income would be taxed in the country of your residence.
Is it compulsory for non-resident Indians to pay advance tax?
As a non-resident Indian, if the tax liability exceeds Rs 10,000 in a financial year, you need to pay the advance tax. In case, if you fail to do the same, you will need to pay an interest on outstanding liability under the Section 234B and Section 234C of I-T Act. The advance tax is part o the payment of the tax liabilities, and the individual pays as he earns under this scheme. Tax is applicable if you make money from sources other than the monthly salary. The gains made through the property sale, interest earned on the investments, et cetera, profits gained through business, attract advance tax payments.
What are deductions allowed to Non-resident Indian?
On the par with residents, non-resident Indians are allowed deductions for homes purchased in India.
Under the section 80E, non-resident Indian can also claim the deduction on the paid interest against the education loans
Under Section 80D, non-resident Indians can claim the deduction up to Rs 40,000in financial year for health insurance premiums
Under the Section 80G, non-resident Indians also claim the deduction on donations and charity
Under the section 80TT-A, non-resident Indian claim the deduction on the interest earned on money lying in the savings bank accounts. There is the cap of Rs 10,000 on the income, though, which is actually applicable to both residents as well as non-residents.
What deductions are not allowed to non-resident Indians?
Unlike the resident Indians, non-resident Indians don’t enjoy deductions on some of the investments under Section 80C of I-T Act. These include-
• Investment in Public Provident Fund (you, however, can maintain the PPF account if you opened it while they were the resident)
• Investment in National Savings Certificate
• Investment in a senior-citizen savings scheme
• Investment in 5 years Post Office Deposit Scheme
• Investment in Rajiv Gandhi Equity Savings Scheme
• Deductions provided to differently-abled people under the Section 80DD, Section 80DDB, and Section 80U
How do I make sure I have not taxed twice the same income?
India has signed the pact with more than 80 countries known as Double Taxation Avoidance Agreement so that non-resident Indians don’t end up paying the taxes twice- once in Indian and once in the country of the residence, on the same income. Under the provisions of the treaty, there are 2 ways to make sure there is no overlapping of the tax payments. Under the exemption method, a person is taxed in the country and exempted in another. In credit input method, the income is taxed in both the countries and exemption is claimed in the country of the present residence.
