NRI liable to pay Income Tax on the income earned in India

According to the Income Tax Act, 1961 a non-resident Indian is defined as any person who is an Indian citizen or a person having an Indian origin is not a resident in the country.

A person becomes of Indian origin when he or any of his Indian parents or any of his grandparents was born in India when the country was undivided.

Status of NRI regarding taxes:

 During the last many years, many Indians are moving abroad for better prospects of career. Many of them maintain bank accounts in India. A Non Resident Indian (NRI) with a bank account in India should be aware of the tax laws relating to NRIs.

A Non-Resident Indian is liable to pay tax for the income earned or accrued in India, whether the income is directly or indirectly received by the Non-Resident Indian in India. A Non-Resident Indian has to pay tax for the income from any business transaction as well as the income generated from assets held in India.

Income of NRI which are taxable:

The following incomes of NRIs are only taxable in India –

1. Income accrued in India;

2. Income which has its source in  India;
3. Income received in India.

Differences between the taxation rules of residents and NRIs:

The main difference between the rules regarding the income tax paid by a resident Indian and a Non-Resident Indian is that a NRI only has to pay tax for the Income earned in India and the income which is earned and accrued in a foreign country is totally exempted from income tax in the country.

Non-residents Indians get many tax exemptions provided they fulfill the criteria of Non-Resident Indian under the Income Tax Act, 1961. These are like Interest earned from any Savings Certificate, Interest earned from Foreign Currency Non Resident (Bank) Deposit, Long-term capital gains through transfer of equity shares of any recognized Stock Exchange, etc.

Deductions for NRIs:

There are many tax saving options for Non-Resident Indians.  They are allowed the following deductions as per provisions of the Income Tax Act, 1961:

1.  Home Loan Interest Deduction – Non-residents Indians are entitled to get deductions on home loan for the interest portion of the EMI which they pay towards its repayment.
2. Health Insurance Premium Deduction – Non-residents Indians are entitled to get deduction for the premium paid for any health insurance policy for himself and his family up to a limit of Rs 15,000 or Rs 20,000 and a further sum of Rs 15,000 (or Rs 20,000 in case of senior citizens) for the premium paid towards the health insurance of his parents.

3. Miscellaneous Deductions – There are many other deductions available to NRIs like, Deduction for interest paid on educational loan, Deduction for some particular donations, etc.